Behavioral Economics Commons^™

Do The Securities Laws Actually Protect Investors (And How)? Lessons From Spacs, Patrick M. Corrigan

Journal Articles

From the Article

This Article identifies transactional innovation in public offering markets as a case study of how going-public transactions would work if issuers could choose to relax some of the investor protections provided under the securities laws. In recent years, private companies that wanted to go public had a meaningful choice between a traditional initial public offering and a merger with a special purpose acquisition corporation (SPAC). Most of the direct and indirect investor protections that ordinarily apply in the initial public offering context are relaxed in the SPAC context.

The Article argues that outcomes in SPAC markets, where …

If You Can't Beat Them, Join Them: Richard Posner And Behavioral Law And Economics, Avishalom Tor, Doran Teichman, Eyal Zamir

Journal Articles

Since its publication in 1973, Economic Analysis of Law (the Treatise) by Richard Posner has been recognized as the canonical treatise in the field. Given this status, observing changes over time in the different editions of the book can highlight substantial and methodological shifts in the area. On this backdrop, this brief essay will highlight Posner's change of attitude towards behavioral analysis of law over the years, culminating with the incorporation of behavioral insights into the las edition of this book, published in 2024.

Digital Nudging: Potentional And Pitfalls, Avishalom Tor

Journal Articles

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Digital nudges — that is, significantly behavioral interventions that use software and its user-interface design elements — are an increasingly pervasive feature of online environments that can shape people’s behavior both online (e.g. changing website cookie settings) and offline (e.g. taking a flu vaccine due to a text message reminder). While sharing many characteristics of offline behavioral interventions, digital nudges merit specific attention and analysis due to their growing ubiquity and potential potency, the opacity of their technological and behavioral mechanisms, and the central role of private actors in their implementation.

Optimal Climate Policy And The Future Of World Economic Development, Mark Budolfson, Francis Dennig, Marc Fleurbaey, Noah Scovronick, Asher Siebert, Dean Spears, Fabian Wagner

Journal Articles

How much should the present generations sacrifice to reduce emissions today, in order to reduce the future harms of climate change? Within climate economics, debate on this question has been focused on so-called "ethical parameters" of social time preference and inequality aversion. We show that optimal climate policy similarly importantly depends on the future of the developing world. In particular, although global poverty is falling and the economic lives of the poor are improving worldwide, leading models of climate economics may be too optimistic about two central predictions: future population growth in poor countries, and future convergence in total factor …

What Drives Differences In Management Practices?, Nicholas Bloom, Erik Brynjolfsson, Lucia Foster, Ron Jarmin, Megha Patnaik, Itay Saporta-Eksten, John Van Reenen

Journal Articles

Partnering with the US Census Bureau, we implement a new survey of "structured" management practices in two waves of 35,000 manufacturing plants in 2010 and 2015. We fnd an enormous dispersion of management practices across plants, with 40 percent of this variation across plants within the same frm. Management practices account for more than 20 percent of the variation in productivity, a similar, or greater, percentage as that accounted for by R&D, ICT, or human capital. We fnd evidence of two key drivers to improve management. The business environment, as measured by right-to-work laws, boosts incentive management practices. Learning spillovers, …

The Seller’S Curse And The Underwriter’S Pricing Pivot: A Behavioral Theory Of Ipo Pricing, Patrick M. Corrigan

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From the Article

Canonical theories of law and economics predict that issuing firms in initial public offerings (IPOs) demand — and that competitive markets produce — a transaction structure that maximizes value to issuers. Yet, since 1980, corporate America has left approximately 19 cents of foregone proceeds on the table for every dollar it has raised in IPOs. Moreover, the standard IPO contract appears designed to exacerbate rather than resolve agency costs, information asymmetries, and other foreseeable causes of IPO underpricing. This Article studies a new puzzle: why don’t issuers anticipate their transactional vulnerability and bargain for a sale of …

Snapchat's Gift: Equity Culture In High-Tech Firms, Amy Deen Westbrook, David A. Westbrook

Journal Articles

Snap, Inc., the company that owns the platform Snapchat, controversially offered nonvoting common shares to the public in 2017. This Article asks what it means to invest in Snap or other (mostly technology-based) companies in which common shareholders collectibely have little or no power to influence corporate policy. In particular, why do such investors expect to be compensated? This Article explores the familiar rationales for equity investing, including stock appreciation and dividends, and the logical shortcomings of those rationales in these circumstances. Adopting Henry Manne's "two systems" approach to corporate affairs through both law and economics, we show that corporation …

Gender And Competitive Preferences: The Role Of Competition Size, Kathrin J. Hanek, Stephen M. Garcia, Avishalom Tor

Journal Articles

In a series of 8 studies, we examine whether gender differences in competition entry preferences are moderated by the size of the competition. Drawing on theories of gender roles and stereotypes, we show that women, relative to men, prefer to enter smaller compared with larger competitions. Studies 1a and 1b demonstrate this effect in observational data on preferences for working in differently-sized firms and applying to differently-sized colleges. Studies 2a and 2b replicate the effect with real behavioral decisions in different domains. We also find empirical evidence that prescriptive gender norms and stereotypes underlie this effect. In Study 3, we …

Boundedly Rational Entrepreneurs And Antitrust, Avishalom Tor

Journal Articles

This article examines entrepreneurial activity and its implication for policy and antitrust law from a behavioral perspective. In particular, the analysis here focuses on the role of two sets of behavioral phenomena—overconfident beliefs and risk-seeking preferences—in facilitating boundedly rational entrepreneurship. Boundedly rational entrepreneurs may engage in entrepreneurial activity, such as the starting of new business ventures, under circumstances in which rational entrepreneurs would decline to do so. Consequently, overconfident or risk-seeking entrants compete with their more rational counterparts and create a post-entry landscape that differs markedly from the picture assumed by traditional economic accounts of entrepreneurial activity. The behaviorally informed …

The Price Of Equality: Suboptimal Resource Allocations Across Social Categories, Stephen M. Garcia, Max H. Bazerman, Shirli Kopelman, Avishalom Tor, Dale T. Miller

Journal Articles

This paper explores the influence of social categories on the perceived trade-off between a relatively bad but equal distribution of resources between two parties and a profit-maximizing yet unequal one. Studies 1 and 2 showed that people prefer to maximize profits when interacting within their social category, but chose not to maximize individual and joint profits when interacting across social categories. Study 3 demonstrated that outside observers, who were not members of the focal social categories, also were less likely to maximize profits when resources were distributed across social category lines. Study 4 showed that the transaction utility of maximizing …

The N-Effect More Competitors, Less Competition, Stephen M. Garcia, Avishalom Tor

Journal Articles

This article introduces the N-effect—the discovery that increasing the number of competitors (N) can decrease competitive motivation. Studies 1a and 1b found evidence that average test scores (e.g., SAT scores) fall as the average number of test takers at test-taking venues increases. Study 2 found that individuals trying to finish an easy quiz among the top 20% in terms of speed finished significantly faster if they believed they were competing in a pool of 10 rather than 100 other people. Study 3 showed that the N-effect is strong among individuals high in social-comparison orientation and weak among those low in …

Profit Maximization Versus Disadvantageous Inequality: The Impact Of Self-Categorization, Stephen M. Garcia, Avishalom Tor, Max H. Bazerman, Dale T. Miller

Journal Articles

Choice behavior researchers (e.g., Bazerman, Loewenstein, & White, 1992) have found that individuals tend to choose a more lucrative but disadvantageously unequal payoff (e.g., self—$600/other—$800) over a less profitable but equal one (e.g., self—$500/other—$500); greater profit trumps interpersonal social comparison concerns in the choice setting. We suggest, however, that self-categorization (e.g., Hogg, 2000) can shift interpersonal social comparison concerns to the intergroup level and make trading disadvantageous inequality for greater profit more difficult. Studies 1–3 show that profit maximization diminishes when recipients belong to different social categories (e.g., genders, universities). Study 2 further implicates self-categorization, as selfcategorized individuals tend to …