Arnaldo Camuffo, Alessandro Cordova, Alfonso Gambardella, 06 January 2018

Entrepreneurs often predict future revenues using rules of thumb. The column argues that by testing precise hypotheses, 'scientist-entrepreneurs' would be less likely to invest in failures. A randomised controlled trial among Italian start-ups showed that this technique increased average returns for entrepreneurs. Used more generally, the precision effect may help screen out bad business ideas at an early stage.

Charles Manski, 27 October 2017

In medical treatment, it is assumed that adherence to clinical practice guidelines is always preferable to decentralised clinical decision-making, yet there is no welfare analysis that supports this belief. This column argues that it would be better to treat clinical judgement as a problem of decision-making under uncertainty. In this case there would be no optimal way to make decisions, but there are reasonable ways with well-understood welfare properties.

Itzhak Ben-David, John Graham, Campbell Harvey, 20 August 2016

Experiments have revealed that humans often suffer from overconfidence in the accuracy of their information, or ‘miscalibration’. This column uses data from surveys of CFOs to assess their ability to make financial predictions. The results suggest not only that CFOs are miscalibrated, but also that firms with miscalibrated executives appear to be more aggressive in their corporate policies. In other words, the overconfidence of the executive shows up in the company’s policies.

Philipp Strack, Paul Viefers, 16 October 2014

Regret can shape preferences and thus is an important part of the decision-making process. This column presents new findings on the theoretical and behavioural implications of regret. Anticipated regret can act like a surrogate for risk aversion and could deter investment. However, once people have invested, they become attached to their investment. This commitment is higher with better past performance.