Understanding how prior outcomes affect risk attitudes is critical for the study of choice under uncertainty. A large literature documents the significant influence of prior losses on risk attitudes. The findings appear contradictory: some studies find greater risk-taking after a loss, whereas others show the opposite—that people take on less risk. I reconcile these seemingly inconsistent findings by distinguishing between realized versus paper losses. Using new and existing data, I replicate prior findings and demonstrate that following a realized loss, individuals avoid risk; if the same loss is not realized, a paper loss, individuals take on greater risk. (JEL D11, D14, D81, G11)

We propose that a person’s desire to consume an object or possess an attribute increases in how much others want but cannot have it. We term this motive imitative superiority-seeking and show that it generates preferences for exclusion that help explain a host of market anomalies and make novel predictions in a variety of domains. In bilateral exchange, trade becomes more zero-sum, leading to an endowment effect. People’s value of consuming a good increases in its scarcity, which generates a motive for firms and organizations to engage in exclusionary policies. A monopolist producing at constant marginal cost can increase profits by randomly excluding buyers relative to the standard optimal mechanism of posting a common price. In the context of auctions, a seller can extract greater revenues by randomly barring a subset of consumers from bidding. Moreover, such non-price-based exclusion leads to higher revenues than the classic optimal sales mechanism. A series of experiments provides direct support for these predictions. In basic exchange, a person’s willingness to pay for a good increases as more people are explicitly barred from the opportunity to acquire it. In auctions, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Consistent with our predictions, exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Our model of superiority-seeking generates “Veblen effects,” rationalizes attitudes against redistribution and provides a novel motive for social exclusion and discrimination.

We show that constraints can improve financial decision-making by disciplining behavioral biases. In financial markets, restrictions on leverage limit traders’ ability to borrow to open new positions. We demonstrate that regulation that restricts the provision of leverage to retail traders improves trading performance. By increasing the opportunity cost of postponing the realization of losses, leverage constraints improve traders’ market timing and reduce their disposition effect. We replicate these findings in two distinct experimental settings, further isolating the mechanism and demonstrating generality of the results. The interaction between constraints and behavioral biases has implications for policy and choice architecture.

We explore the mechanics of empathy. We show that information about an outgroup can activate and magnify empathy when presented in conjunction with an experience simulating their struggles. This response increases the willingness to help the struggling group. We provide evidence for this effect in an immersive virtual reality experiment where participants (“witnesses”) experience a simulation of the struggle of unauthorized migrants (“protagonists”), then replicate these results in a series of controlled lab experiments. We show that information enhances the witnesses’ empathetic response and drives them to engage in more prosocial behavior when it increases their perceived interpersonal similarity, or relatability to the protagonist — an effect we trace to attention: eye-tracking data reveals that information provision concentrates witnesses’ gaze on the struggles of the protagonist instead of searching through peripheral elements of the scene. Conversely, only information packages that strengthen perceived relatability — an effect that can vary across subgroups with heterogeneous attributes — magnify empathy. Together, our evidence suggests that the ability to put oneself in the shoes of another person or group can be enhanced by activating empathy through simple, targeted, information provision.

We examine how owning a good affects learning and beliefs about its quality. We show that people have more extreme reactions to information about a good they own compared with the same information about a nonowned good: ownership causes more optimistic beliefs after receiving a positive signal and more pessimistic beliefs after receiving a negative signal. Comparing learning to normative benchmarks reveals that people overextrapolate from signals about goods they own, which leads to an overreaction to information; in contrast, learning is close to Bayesian for nonowned goods. We provide direct evidence that this effect is driven by ownership channeling greater attention toward associated information, which leads people to overweight recent signals when forming beliefs. The relationship between ownership and beliefs has testable implications for trade and market expectations. In line with these predictions, we show that the endowment effect doubles in response to positive information and disappears with negative information, and demonstrate a significant relationship between ownership and overextrapolation in survey data about stock market expectations.

ABSTRACT Are market experts prone to heuristics, and do these heuristics transfer across buying and selling domains? We investigate this question using a unique data set of institutional investors with portfolios averaging $573 million. A striking finding emerges: While there is evidence of skill in buying, selling decisions underperform substantially, even relative to random‐selling strategies. This holds despite the similarity between the two decisions in frequency, substance, and consequences for performance. Evidence suggests an asymmetric allocation of cognitive resources such as attention can explain the discrepancy: We document a systematic, costly heuristic process for selling but not for buying.

We document a robust dynamic inconsistency in risky choice. Using a unique brokerage dataset and a series of experiments, we compare people's initial risk-taking plans to their subsequent decisions. Across settings, people accept risk as part of a loss-exit strategy—planning to continue taking risk after gains and stopping after losses. Actual behavior deviates from initial strategies by cutting gains early and chasing losses. More people accept risk when offered a commitment to their initial strategy. Our results help reconcile seemingly contradictory findings on risk-taking in static versus dynamic contexts. We explore implications for theory and welfare. (JEL D81, G13, G24, G41)

Economists often measure discrimination as disparities arising from the direct effects of group identity. We develop new tools to model and measure systemic discrimination, capturing how discrimination in other decisions indirectly contributes to disparities. A novel experimental design, the iterated audit, identifies systemic discrimination. We illustrate these new tools in two field experiments. The first experiment shows how racial discrimination can accumulate across multiple rounds of hiring through the interaction of two forces: greater discrimination against inexperienced workers, which affects the opportunity to obtain experience, and high subsequent returns to experience. The second experiment shows how gender-based differences in the language of recommendation letters can translate into systemic gender discrimination in STEM hiring. We discuss how our findings qualify previous results on direct discrimination and how our tools can be used to target policy interventions.

We conduct a field experiment with low-income shoppers to study how behavioral interventions can improve the effectiveness of healthy food subsidies. Our unique design enables us to deliver subsidies both before and during grocery shopping. We examine the effects of two nonrestrictive changes to the choice environment: giving shoppers agency over the subsidy they receive and introducing a waiting period before a subsidized shopping trip to prompt deliberation about upcoming purchases. These interventions increase healthy food spending by 61% more than a healthy food subsidy alone, resulting in 199% greater healthy spending than in our unsubsidized control group.

We model the dynamics of discrimination and show how its evolution can identify the underlying source. We test these theoretical predictions in a field experiment on a large online platform where users post content that is evaluated by other users on the platform. We assign posts to accounts that exogenously vary by gender and evaluation histories. With no prior evaluations, women face significant discrimination. However, following a sequence of positive evaluations, the direction of discrimination reverses: women’s posts are favored over men’s. Interpreting these results through the lens of our model, this dynamic reversal implies discrimination driven by biased beliefs. (JEL C93, D83, J16, J71)