Research

Handbook of Financial Decision Making • 2023

I review the empirical literature on word of mouth (WOM) among investors. I begin with an outline of the empirical challenges that WOM research faces and possible strategies for overcoming those challenges. I then discuss recent studies on WOM among retail and institutional investors. The research to date provides compelling evidence that WOM importantly determines investment decisions. On balance, the information transmitted through WOM does not appear to help investors make better investment decisions. I explore possible reasons. I also discuss potential asset-pricing implications, the emergence of social technologies, and possible avenues for future research.

Oxford Research Encyclopedia of Economics and Finance • 2019

Corporate finance is about understanding the determinants and consequences of the investment and financing policies of corporations. In a standard neoclassical profit maximization framework, rational agents, that is, managers, make corporate finance decisions on behalf of rational principals, that is, shareholders. Over the past two decades, there has been a rapidly growing interest in augmenting standard finance frameworks with novel insights from cognitive psychology, and more recently, social psychology and sociology. This emerging subfield in finance research has been dubbed behavioral corporate finance, which differentiates between rational and behavioral agents and principals. The presence of behavioral shareholders, that is, principals, may lead to market timing and catering behavior by rational managers. Such managers will opportunistically time the market and exploit mispricing by investing capital, issuing securities, or borrowing debt when costs of capital are low and shunning equity, divesting assets, repurchasing securities, and paying back debt when costs of capital are high. Rational managers will also incite mispricing, for example, cater to non-standard preferences of shareholders through earnings management or by transitioning their firms into an in-fashion category to boost the stock's price. The interaction of behavioral managers, that is, agents, with rational shareholders can also lead to distortions in corporate decision making. For example, managers may perceive fundamental values differently and systematically diverge from optimal decisions. Several personal traits, for example, overconfidence or narcissism, and environmental factors, for example, fatal natural disasters, shape behavioral managers' preferences and beliefs, short or long term. These factors may bias the value perception by managers and thus lead to inferior decision making. An extension of behavioral corporate finance is social corporate finance, where agents and principals do not make decisions in a vacuum but rather are embedded in a dynamic social environment. Since managers and shareholders take a social position within and across markets, social psychology and sociology can be useful to understand how social traits, states, and activities shape corporate decision making if an individual's psychology is not directly observable.

Narrative Economics • 2019

Stories people tell-about financial confidence or panic, housing booms, or Bitcoin-can go viral and powerfully affect economies, but such narratives have traditionally been ignored in economics and finance because they seem anecdotal and unscientific. In this groundbreaking book, Robert Shiller explains why we ignore these stories at our peril-and how we can begin to take them seriously. Using a rich array of examples and data, Shiller argues that studying popular stories that influence individual and collective economic behavior-what he calls "narrative economics"-may vastly improve our ability to predict, prepare for, and lessen the damage of financial crises and other major economic events. The result is nothing less than a new way to think about the economy, economic change, and economics. In a new preface, Shiller reflects on some of the challenges facing narrative economics, discusses the connection between disease epidemics and economic epidemics, and suggests why epidemiology may hold lessons for fighting economic contagions.

Customer Analytics for Maximum Impact: Academic Insights and Business Use Cases • 2018

One of the biggest changes in the marketing landscape in recent years has been a shift toward fostering word-of-mouth (WOM) to let consumers advocate on a brand's behalf. Many marketing executives consider online WOM, which has increased dramatically in volume in recent years, one of the most effective forms of marketing. Every second, 6,000 tweets are posted on Twitter, and that volume is growing at around 30% per year. Similar patterns apply to other social media platforms such as Facebook, as well as to platforms that host costumer reviews. TripAdvisor and Yelp host 570 million and 142 million reviews, respectively, and are visited by 455 million and 188 million users each month. However, reliably measuring the impact of WOM on demand is subject to some unique challenges, and many marketing managers admit that measuring WOM effectiveness remains difficult. In this chapter, we outline the current state of the academic literature regarding the impact of online WOM on demand. We first outline measurement challenges in the realm of WOM and how they can be resolved. We then summarize recent findings on the effectiveness of WOM in two domains: customer reviews and online conversations about brands on platforms such as Twitter or other social media. The former are a type of activity that typically occur after consumption and that impose a specific structure (often a rating scale) on consumers' WOM. The latter instead are less structured and can take place before and/or after consumption. These two areas are sufficiently different and shall be treated separately.

Oxford Handbook of Networked Communication • 2020

Information sharing is a core human activity that catalyzes innovation and development. Recent advances in neuroscience reveal information about the psychological mechanisms that drive sharing, with a particular focus on self-relevance, social cognition, and subjective value. Based on these insights, this chapter proposes a structural model of the neurocognitive and psychological processes that drive sharing decisions, called value-based virality. Further, it maps existing knowledge about neural correlates and moderators of thought processes linked to individual and population-level sharing events and outcomes and suggests avenues for future investigation. Finally, the chapter discusses the potential of the neuroscience of information sharing to interact productively with other methodological traditions such as computational social science. Initial neuroimaging studies of information sharing provide insights into psychological mechanisms that were previously inaccessible. With the development of more realistic experimental setups and multimethod designs, future efforts promise advances toward a unifying theory of why and how people share information.

Handbook of Communication Science and Biology • 2020

What are the psychological and neural processes that support successful information propagation between communicators and receivers? The current chapter draws upon recent contributions from neuroscience to focus on the role of mentalizing, or considering other people's mental states, as one factor that leads to successful social influence and information propagation. Across different contexts, messages that lead to information propagation are distinguished by higher levels of mentalizing in both communicators and receivers of influence. The chapter also highlights developmental, cultural, and social network factors that moderate the relationship between mentalizing and influence.