We study the circumstances under which public pressure affects judging. We show that crowd pressure biases decisions in favor of the crowd for “subjective decisions” with respect to which the judge has more discretion but not for “objective decisions.” The bias is strengthened after a judge's error against the crowd and when errors are costlier to the crowd. We use data about referees' decisions and errors from the Bundesliga. We exploit three regimes where, due to the introduction of Video Assistance Refereeing (VAR) and COVID-19, both crowd pressure and the likelihood of errors vary.

The collapse of long-term lending relationships amplified the Great Depression. We demonstrate this by developing a new measure of lending relationships that can be calculated from widely available data at any level of aggregation. Our approach exploits differences in the responsiveness of loan rates to bank funding costs and is supported by historical evidence and theoretical arguments. The new measure reveals that the marginal impact of bank suspensions on economic activity was higher in more relationship-intensive areas, providing the first formal evidence that relationship lending propagated the real effects of banking sector distress in the early 1930s.

Using panel data on over 300,000 Israeli women from 1999 to 2005, we exploit variation in Israel's child subsidy to identify the impact of changes in the price of a marginal child on fertility. We find a positive, statistically significant, and economically meaningful price effect on overall fertility and, consistent with Becker (1960) and Becker and Tomes (1976), a small effect of income on fertility, which is negative at low and positive at high income levels. We also find a price effect on fertility among older women, suggesting that part of the overall effect is due to a reduction in total fertility.

We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyze firms to their more complicated peers. Specifically, a simple portfolio strategy that takes advantage of this straightforward vs. complicated information processing classification yields returns of 118 basis points per month before transaction costs. Consistent with processing complexity driving the return relation, we further show that the more complicated the firm, the more pronounced the return predictability. In addition, we find that sell-side analysts are subject to these same information processing constraints, as their forecast revisions of easy-to-analyze firms predict their future revisions of more complicated firms.

A large body of literature suggests that firm-level stock prices “underreact” to news about future cash flows; i.e., shocks to a firm's expected cash flows are positively correlated with shocks to expected returns on its stock. We examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Institutions buy shares from (sell shares to) individuals in response to positive (negative) cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up (down) in the absence of any cash-flow news, institutions sell shares to (buy shares from) individuals. Although institutions are trading in the “right” direction, institutions as a group outperform individuals by only 1.44% per annum before transaction and other costs, because they are extremely conservative in deviating from the value-weighted market index.

In the past two decades, considerable progress has been made in studying the economic relationships between countries through the linkage of large-scale national econometric models. Examples of these projects include Project Link, the RDX2-MPS experiments of the Bank of Canada, and the multicountry model of the Federal Reserve Board. While these models tell us much, they typically suffer from several important problems. First, the linkages are often incomplete. In some cases the separate country models may only be linked via the trade accounts. Or, if capital and factor flows are considered, they are modeled in only a highly aggregated fashion. Second, as Ray Fair (1979) has noted, no model does an adequate job of linking the underlying sectoral flows of funds accounts with the national income accounts. Therefore, in the interest of modeling aggregate relationships, underlying balance sheet constraints may be violated or ignored. This could have, Fair argues, important consequences for empirical results.' In this paper we suggest our own strategy for modeling the economic linkages between any two countries. Our strategy focuses on the underlying flows between these two countries and the sectoral contributions to these flows. That is, we propose to merge the flow of funds accounts via their bilateral balance of payments. We envision an integrated flow of funds accounting framework with the two countries sharing a common balance of payments. This modeling strategy has several advantages. First, our suggested framework could be used, following the strategy of Fair, to supply the financial underpinning for future economic modeling of international linkages of prices and interest rates. The balance sheet constraints inherent in the framework will impart additional information in any statistical estimation of such a model. Second, this strategy should yield a better understanding of a country's balance of payments since it necessarily links domestic decision making with its international outcome. Third, our framework should be useful to policymakers since it would allow them to model the underlying financial implications of proposed policy changes. Finally, the implementation of our proposal could lead to improved accuracy in balance of payments statements. tDiscLussant: John A. Sawyer, University of Toronto.

We develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts. We account for adverse selection by modeling unobserved heterogeneity in both risk (claim rate) and risk aversion. We find large and skewed heterogeneity in risk attitudes. In addition, women are more risk averse than men, risk aversion exhibits a U-shape with respect to age, and proxies for income and wealth are positively associated with absolute risk aversion. Finally, unobserved heterogeneity in risk aversion is greater than that of risk, and, as we illustrate, has important implications for insurance pricing.

We advance social identity theory in the context of corporate governance research by evaluating how experiences outside the audit committee (AC) relate to AC members’ (ACMs’) professional identities and how these identities then map into ACMs’ responsibilities, how ACMs perceive that they add value, and how ACMs aid in the resolution of difficult judgments and decisions. We identify and evaluate four non-exclusive ACM social identities: executive management, financial management, investment management, and audit partner. We find that prior experiences relate to the social identities with which ACMs identify, yet identities also develop without role-relevant experiences. Interpreting the interviews leads us to propose a novel theory – mediational activism – a hybrid perspective whereby the ACM acts in multiple seemingly incongruent modes as a monitor, collaborator, and/or advocate with the intent to organize collective understanding, action, and mutually equitable outcomes. We find that ACMs’ perceptions of their primary role-relevant responsibilities are consistent with agency theory and extensive mediational activism, while perceptions of value-add are more consistent with the theory of resource dependence and reflect the desire to leverage prior experiences. Finally, we provide evidence on a host of difficult judgments and decisions that ACMs oversee, and find that they sometimes use typical negotiation strategies such as contending and compromising, but rarely resort to offering concessions. Employing these strategies differs based on social identities, but regardless of their identities ACMs most commonly approach their oversight role in resolving difficult judgments and decisions by adopting a mediational activism perspective.