RESEARCH

PUBLISHED & FORTHCOMING PAPERS

No. In the presence of speculative opportunities, investors can learn about both asset fundamentals and the beliefs of other traders. We show that this learning exhibits complementarity: learning more along one dimension increases the value of learning about the other. As a result, regulatory changes may be counterproductive. First, increasing transparency (i.e., making fundamental information cheaper to acquire) can make prices less informative when investors respond by learning relatively more about others. Second, public disclosures discourage private learning about fundamentals while encouraging information acquisition about others. Accordingly, disclosing more fundamental information can decrease overall information efficiency by decreasing price informativeness.

The psychology literature documents that individuals derive current utility from their beliefs about future events. We show that, as a result, investors in financial markets choose to disagree about both private and public information. When objective price informativeness is low, each investors dismisses the private signals of others and ignores price information. In contrast, when prices are sufficiently informative, heterogeneous interpretations arise endogenously: most investors ignore prices, while the rest condition on it. Our analysis demonstrates how observed deviations from rational expectations (e.g., dismissiveness, overconfidence) arise endogenously, interact with each other, and vary with economic conditions.

As of 2019, salary history bans have been enacted by 17 states and Puerto Rico with the stated purpose of reducing the gender pay gap.  We argue that salary history bans may negatively affect wages as employers lose an informative signal of worker productivity. We empirically evaluate these laws using a large panel dataset of disaggregated wages covering all public sector employees in 36 states and find, on average, salary history bans lead to a 3% decrease in new hire wages.  We find no decrease in the gender pay gap in the full sample and a modest 1.5% increase in the relative wages of women, as compared to men, among new hires most likely to have experienced gender discrimination historically. 

Financial markets reveal information which firm managers can utilize when making equity value-enhancing investment decisions. However, for firms with risky debt, such investments are not necessarily socially efficient.  Despite this friction, we show that learning from prices improves investment efficiency. This effect is asymmetric, however, as investors learn less about projects which decrease the riskiness of cash flows: efficiency is lower for diversifying investments than for focusing (risk-increasing)  investments. This also implies that investors' endogenous learning further attenuates risk-shifting but amplifies debt overhang. Our model provides a novel channel through which learning from financial markets impact agency frictions between stakeholders.

The data-generating process underlying productivity includes both trend and business cycle shocks, generating counterfactuals for prices under full information. In practice, agents inability to immediately distinguish between the two shocks creates "rational confusion": each shock inherits properties of its counterpart. This confusion magnifies the perceived share of permanent shocks and implies that, contrary to canonical frameworks, transitory shocks are the main driver of long-run risk through trendy business cycles. With learning, the equity premium turns positive, while investment and valuation ratios  become procyclical, as in the data. Consequently, rational confusion is key for reconciling disciplined macro-dynamics with equilibrium asset prices.

WORKING PAPERS

We characterize how wishful thinking affects the interpretation of information in economies with strategic and external effects. While players always choose to exhibit overconfidence in private information, their interpretation of public information depends on how non-fundamental volatility affects payoffs. When volatility increases payoffs, players may endogenously disagree: some under-react to public news, while others overreact. In contrast to rational expectations, public information can increase dispersion in actions while private information can increase aggregate volatility. Our analysis has novel implications for the social value of information and demonstrates how endogenous beliefs can reconcile recent evidence on forecast revisions and information rigidities. 

Stock prices reflect managerial performance and aggregate investor information about investment opportunities. We show that these dual roles are often in tension: when prices are more informative about future opportunities, they may be less effective at incentivizing managerial effort. Overall firm value can decrease with price informativeness, but increase with lower transparency and ex-post inefficient investment rules. We show that standard empirical measures of price efficiency are incomplete and derive testable predictions for the price-sensitivity and composition of managerial compensation.

Better-informed individuals are typically unable to ignore their private information when forecasting others' beliefs. We study how this bias, known as the "curse of knowledge," affects costly communication and information production in a sender-receiver game. With exogenous information, cursed senders are worse communicators. However, with endogenous information production, we show that cursed senders not only produce more precise information but can, in fact, be better communicators than unbiased senders, leading to higher expected payoffs in equilibrium. Finally, we demonstrate how players' expertise and the diversity of their beliefs amplify the impact of this bias on endogenous information provision.

A risk-averse agent can sell claims to an asset of uncertain value to investors who have private information. When investors can choose how much information to acquire, the agent optimally issues information-sensitive securities in each market (e.g., debt and equity). When the value of the asset varies over time, the agent chooses to retain and, at times, repurchase a portion of the claims for issuance at a later date. The agent's choice to smooth the information sensitivity of the claims issued, across markets and over time, has novel implications. First, the relative information insensitivity of debt can render it a suboptimal security for financing. Second, if the agent has private information about cash flows, he can signal that he has better information by selling, rather than retaining, a larger claim to the asset. Finally, while the sale of illiquid securities generates increased uncertainty at issuance, it can lower the agent's uncertainty when raising capital in the future. 

Early-stage firms utilize venture debt in one-third of financing rounds despite their general lack of cash flow and collateral. In our model, we show how venture debt aligns incentives within a firm. We derive a novel theoretical channel in which runway extension through debt increases firm value while potentially lowering closure. Consistent with the model's mechanism, we find that dilution predicts venture debt issuance. Empirically, treatment with venture debt lowers closure hazard by 1.6-4.4% and increases successful exits by 4.3-5.3%. Back-of-the-envelope calculations suggest $41B, or 9.4% of invested capital, remains productive due to venture debt. 

WORK IN PROGRESS