Since 1967, all French firms with more than 100 employees have been required to share a fraction of their excess profits with their employees. Through this scheme, firms with excess profits distribute, on average, 10.5% of their pretax income to workers. In 1990, the eligibility threshold was reduced to 50 employees. We exploit this regulatory change to identify the effects of mandated profit-sharing on firms and their employees. The cost of mandated profit-sharing for firms is evident in the significant bunching at the 100-employee threshold observed prior to the reform, which completely disappears post-reform. Using a difference-in-differences strategy, we find that at the firm level, mandated profit-sharing (i) increases the labor share by 1.8 percentage points, (ii) reduces the profit share by 1.4 percentage points, and (iii) has small to nonexistent effects on investment and productivity. At the employee level, mandated profit-sharing increases lower-skilled workers’ total compensation and leaves high-skilled workers’ total compensation unchanged. Overall, mandated profit-sharing redistributes excess profits to lower-skilled workers in the firm without generating significant distortions or productivity effects.

We investigate biases in expectations across different settings through a large-scale randomized experiment where participants forecast stable stochastic processes. The experiment allows us to control forecasters’ information sets as well as the data-generating process, so we can cleanly measure biases in beliefs. We report three facts. First, forecasts display significant overreaction to the most recent observation. Second, overreaction is stronger for less persistent processes. Third, overreaction is also stronger for longer forecast horizons. We develop a tractable model of expectations formation with costly processing of past information, which closely fits the empirical facts. We also perform additional experiments to test the mechanism of the model.