Beyond content: how to obtain information that matters [Link]

This paper studies the impact of information acquisition methods on individuals' attention when predicting an asset value. Using a behavioral Bayesian updating model, I study two important aspects of information acquisition methods i.e. the impact of cost and the impact of giving individuals the option to acquire information precision, labeled discretion. The predictions of the model are tested in a laboratory experiment in which the incentives are meant to be, to some extent, naturalistic. The experiment allows to document that when the level of private information precision is exogenously provided and free of charge, an increase in private information precision leads to a decrease in attention. When the level of private information precision is exogenously provided and costly, attention is unaffected by the varying levels of private information precision. If the level of private information precision is endogenously decided and costly, i.e., participants choose costly private information precision by themselves, the higher the private information precision, the higher the attention. I provide evidence that both information acquisition cost and discretionary power positively impact attention. The effort effect attributes to the effect of the effort's product, but not the effect of the effort itself.


The impact of predetermined financial returns on investment behavior (with Béatrice Boulu-Reshef and Graciela Kuechle) [Link]

This paper studies in theory and in an experiment the two fundamental environments which are available to entrepreneurial firms that seek investments i.e. whether they face a predetermined return, that is known to the investor and the entrepreneur \textit{ex ante}, or a free return, that is decided \textit{ex post} and by the entrepreneur only. The paper allows us to estimate the cost of potential betrayal in investor-entrepreneur investment relationships and documents how the obligation of a return (or the lack thereof) impacts the investor's investment decision and the entrepreneur's resource allocation decision. Our theoretical work allows us to document that having a predetermined return leads to both a higher transfer from the investor and a higher engage ratio from the entrepreneur into the project. As predicted by theory, the experimental results show that the transfer and engage ratio and amount are higher in the predetermined-return treatment compared to the free-return treatment. While the results on the transfer behavior may be partially explained by the higher expected return and the lower variance induced by the predetermined return, the empirically-documented behavior on the engage behavior are not fully explained by rational expectations. We find that what is financially engaged in the project is moderated by the received amount, which means that the higher the amount received by the firm, the higher the amount engaged in the project. We also find that the engage ratio is less sensitive to the change of received amount in the predetermined-return treatment. 


Truthful reputation? theory and experiments in the context of investment behavior (with Béatrice Boulu-Reshef and Antoine Mandel) [Link]

This paper studies the impact of a reputation mechanism on firms' and investors' behavior in an investment game. The reputation mechanism is a mixture of honesty and performance, as these may be prevalent in actual reputation systems. The newly developed reputation measurement is practical and allows carrying the behavioral type information. We analyze firms' and investors' strategies using a cheap talk framework. We use laboratory experiments to test the predictions of the model. We observe that via this reputation mechanism, firms' truthful behavior can be induced, especially for bad-type firms and low-success rate environments. Thus, the probability of lying is reduced; the market is protected. Second, the reputation mechanism helps investors distinguish between good and bad investment firms. The reputation score can fully explain the investors' investment difference between good-type and bad-type firms. The higher the reputation score, the higher the probability investors choose to invest. Third, different types of investment firms treat reputation differently: the announcements of good-type firms are positively related to the reputation score, and they choose to erode reputation to release higher announcements. The reputation score does not impact the announcements of bad-type firms, and they do not care about reputation. Our findings could address issues about the optimal design for the practical and informative reputation mechanisms in the investment market in future studies.