In their Shoes: Empathy through Information
Marianne Andries, Leonardo Bursztyn, Thomas Chaney, Milena Djourelova, and Alex Imas
The Quarterly Journal of Economics (R&R)
We explore the mechanics of empathy. We show that information about an outgroup can potentially activate and magnify empathy when presented in conjunction with an experience simulating their struggles. This response increases the willingness to help the struggling group, but it is only activated when the information comes before the experience and not after. We provide evidence for this effect in an immersive virtual reality experiment where participants (“witnesses”) simulate the struggle of unauthorized migrants (“protagonists”). These results are then replicated in a series of controlled lab experiments. We show that this effect operates through an increase in interpersonal similarity, or relatability. If information shifts perceptions of relatability, which changes people’s experience when witnessing the protagonist’s struggles, then it magnifies their empathetic response and drives them to engage in more prosocial behavior. 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 information provision.
Risk pricing under gain-loss asymmetry
(Previously circulated as Consumption-based Asset Pricing with Loss Aversion)
Marianne Andries
Management Science (R&R)
We propose a novel tractable gain-loss asymmetric utility model, whereby losses relative to a reference point incur discontinuously more disutility than comparable gains, which allows for the derivation of closed-form asset pricing solutions. Our formal analysis reveals a dual impact on risk prices. First, a level effect: risk prices are made higher by the kink in the preferences. Second, a cross-sectional effect: the pricing of risk is higher (lower) for safer (riskier) assets, so expected returns increase non-linearly with the risk-exposures. This second effect, a crucial departure from standard smooth utility models, is sensitive to modeling choices on the reference point and on the risks agents face; and may help rationalize, both qualitatively and quantitatively, key puzzles in empirical finance: the fit of the security market line and the downward sloping term-structure of equity risk premia.
Financial Advisors and Investors' Bias
Marianne Andries, Maxime Bonelli, and David Sraer
The Review of Financial Studies (2025) Accepted
We study an intervention by a brokerage firm providing advisory services to high-net-worth investors. In 2018, the firm changed the information displayed on its internal platform, so that financial advisors could no longer observe which clients' holdings were in paper gain or loss. Using data on portfolio stock transactions between 2016 and 2021, we show that, while all investors exhibit a significant disposition effect before 2018, i.e., a greater propensity to realize gains than losses, highly-advised investors see their bias significantly reduced afterward. Our paper shows that by appropriately manipulating advisors' information, financial firms can successfully reduce their clients' biases.
The Term Structure of the Price of Variance Risk
Marianne Andries, Thomas M. Eisenbach, R. Jay Kahn, and Martin C. Schmalz
The Review of Finance (2025) Accepted
We empirically investigate the term structure of variance risk pricing and how it varies over time. Estimating the price of variance risk in a stochastic-volatility option pricing model separately for options of different maturities, we find a price of variance risk that decreases in absolute value with maturity but remains significantly different from zero up to the nine-month horizon. We show that the term structure is consistently downward sloping both during normal times and in times of stress, when required compensation for variance risk increases and its term structure steepens further.
Return Predictability, Expectations, and Investment: Experimental Evidence
Marianne Andries, Milo Bianchi, Karen Huynh and Sebastien Pouget
The Review of Financial Studies, 38 (2025): 1687-1729
(Media interview: https://faculti.net/return-predictability-expectations-and-investment/)
We show variations in information affect beliefs, decisions, and the information-beliefs- decisions chain, in an investment experiment. Subjects observe the time series of a risky asset and a signal that, in random rounds, helps predict returns. When they perceive the signal as predictive, subjects form rational forecasts and adjust their risk allocations according to classical investment models. When they perceive the signal as useless, the same subjects form extrapolative forecasts, and their investment decisions under-react to their own beliefs. Because the beliefs-to-decisions sensitivity varies with information, analyzing subjects’ investments without their forecasts would lead to erroneous interpretations of the data.
Horizon-Dependent Risk Aversion and the Timing and Pricing of Uncertainty
Marianne Andries, Thomas M. Eisenbach, and Martin C. Schmalz
The Review of Financial Studies, 37 (2024): 3272-3334
Inspired by experimental evidence, we amend the recursive utility model to let risk aversion decrease with the temporal horizon. Our pseudo-recursive preferences remain tractable and retain appealing features of the long-run risk framework, notably its success at explaining asset pricing moments. Calibrating the agents’ preferences to explain the market returns observed in the data no longer implies an extreme preference for early resolutions of uncertainty; and captures key puzzles in finance on the valuation and demand for risk at long maturities.
Marianne Andries and Valentin Haddad
Journal of Political Economy, 128.5 (2020): 1901-1939
Information aversion, a preference-based fear of news flows, has rich implications for decisions involving information and risk-taking. It can explain key empirical patterns on how households pay attention to savings, namely that investors observe their portfolios infrequently, particularly when stock prices are low or volatile. Receiving state-dependent alerts following sharp market downturns such as during the financial crisis of 2008 improves welfare. Information averse investors display an ostrich behavior: overhearing negative news prompts more inattention. Their fear of frequent news encourages them to hold undiversified portfolios.
L’aversion au risque, composante essentielle du prix du risque, est-elle stable dans le temps?
Marianne Andries
Revue d'Economie Financière, 1st trimester 2019
Ambiguous Trade-Offs: An Application to Climate Change
Marianne Andries and Nina Boyarchenko
We study optimal long-term investment choices in settings where agents face ambiguity about both the future benefit and the current cost, as is likely to be the case for large scale social programs, such as healthcare choices and climate change policies. Faced with this kind of ambiguity, rational economic agents optimally choose investment paths that are observationally equivalent to choices made under hyperbolic discounting. Using calibrated paths of potential output losses under different global warming scenarios, we evaluate the relative attractiveness of small-scale, large-scale and R&D projects for mitigating climate change.
Changes in the Risk-free Rate: Evaluating Asset Pricing Models
Marianne Andries and Jean-Guillaume Sahuc
We evaluate how well the most commonly used asset pricing models in macro-finance can accommodate the observed changes in the risk-free rate over the last three decades, i.e. from a rate of 4% in 1990 to essentially 0% in 2019 (10-year real rates for both the US and Europe). We study the benchmark models of habit (Campbell and Cochrane, 1999), long-run risk (Bansal and Yaron, 2004; Bansal et al., 2009), and rare disasters (Barro, 2006; Gabaix, 2012). Our analysis not only informs how well such models perform “out-of-sample”, i.e. in the near-zero interest rates current era. It can also help in identifying whether macro-economic conditions experienced a (permanent) regime switch in the past few years, or if the observed changes constituted “business as usual” time variations.
Social Responsibility and Asset Prices: Is There a Relation?