Published Papers

News reports and communication are inherently constrained by space, time, and attention. As a result, news sources often condition the decision of whether to share a piece of information on the similarity between the signal and the prior belief of the audience, which generates a sample selection problem. This article experimentally studies how people form beliefs in these contexts, in particular the mechanisms behind errors in statistical reasoning. I document that a substantial fraction of experimental participants follows a simple "what you see is all there is" heuristic, according to which participants exclusively consider information that is right in front of them, and directly use the sample mean to estimate the population mean. A series of treatments aimed at identifying mechanisms suggests that for many participants, unobserved signals do not even come to mind. I provide causal evidence that the frequency of such incorrect mental models is a function of the computational complexity of the decision problem. These results point to the context dependence of what comes to mind and the resulting errors in belief updating.

Social interaction promotes the spread of values, attitudes, and behaviors. Here we report on neural responses to ideas that are destined to spread. Message communicators were scanned using fMRI during their initial exposure to the to-be-communicated ideas. These message communicators then had the opportunity to spread the messages and their corresponding subjective evaluations to message recipients, outside the scanner. Successful ideas were associated with neural responses in the mentalizing system and the reward system when first heard, prior to spreading them. Similarly, individuals more able to spread their own views to others produced greater mentalizing system activity during initial encoding. Unlike prior social influence studies that focus on those being influenced, this investigation focused on the brains of influencers. Successful social influence is reliably associated with an influencer-tobe's state of mind when first encoding ideas.

What happens in the mind of a person who first hears a potentially exciting idea? We examined the neural precursors of spreading ideas with enthusiasm, and dissected enthusiasm into component processes that can be identified through automated linguistic analysis, gestalt human ratings of combined linguistic and nonverbal cues, and points of convergence/divergence between the two. We combined tools from natural language processing (NLP) with data gathered using fMRI to link the neurocognitive mechanisms that are set in motion during initial exposure to ideas and subsequent behaviors of these message communicators outside of the scanner. Participants' neural activity was recorded as they reviewed ideas for potential television show pilots. Participants' language from video-taped interviews collected post-scan was transcribed and given to an automated linguistic sentiment analysis (SA) classifier, which returned ratings for evaluative language (evaluative vs. descriptive) and valence (positive vs. negative). Separately, human coders rated the enthusiasm with which participants transmitted each idea. More positive sentiment ratings by the automated classifier were associated with activation in neural regions including medial prefrontal cortex; MPFC, precuneus/ posterior cingulate cortex; PC/PCC, and medial temporal lobe; MTL. More evaluative, positive, descriptions were associated exclusively with neural activity in temporal-parietal junction (TPJ). Finally, human ratings indicative of more enthusiastic sentiment were associated with activation across these regions (MPFC, PC/PCC, DMPFC, TPJ, and MTL) as well as in ventral striatum (VS), inferior parietal lobule and premotor cortex. Taken together, these data demonstrate novel links between neural activity during initial idea encoding and the enthusiasm with which the ideas are subsequently delivered. This research lays the groundwork to use machine learning and neuroimaging data to study word of mouth communication and the spread of ideas in both traditional and new media environments.

This paper analyzes the trading behavior of stock market investors. Purchases and sales are highly correlated when we divide investors geographically. Investors who live near a firm's headquarters react in a similar manner to releases of public information. We are able to make this identification by exploiting a unique feature of individual brokerage accounts in the People's Republic of China. The data allow us to pinpoint an investor's location at the time he or she places a trade. Our results are consistent with a simple, rational expectations model of heterogeneously informed investors.

The popular media have publicized the idea that social networking Web sites (e.g., Facebook) may enrich the interpersonal lives of people who struggle to make social connections. The opportunity that such sites provide for self-disclosure-a necessary component in the development of intimacy-could be especially beneficial for people with low self-esteem, who are normally hesitant to self-disclose and who have difficulty maintaining satisfying relationships. We suspected that posting on Facebook would reduce the perceived riskiness of self-disclosure, thus encouraging people with low self-esteem to express themselves more openly. In three studies, we examined whether such individuals see Facebook as a safe and appealing medium for self-disclosure, and whether their actual Facebook posts enabled them to reap social rewards. We found that although people with low self-esteem considered Facebook an appealing venue for self-disclosure, the low positivity and high negativity of their disclosures elicited undesirable responses from other people.

This paper shows that managers are influenced by their social peers when making corporate policy decisions. Using biographical information about executives and directors of U.S. public companies, we define social ties from current and past employment, education, and other activities. We find that more connections two companies share with each other, more similar their capital investments are. To address endogeneity concerns, we find that companies invest less similarly when an individual connecting them dies. The results extend to other corporate finance policies. Furthermore, central companies in the social network invest in a less idiosyncratic way and exhibit better economic performance.

When approaching interpersonal first meetings (e.g., job interviews), people often cater to the target's interests and expectations to make a good impression and secure a positive outcome such as being offered the job (pilot study). This strategy is distinct from other approaches identified in prior impression management research (Studies 1A, 1B and 1C), and does not produce the benefits people expect. In a field study in which entrepreneurs pitched their ideas to potential investors (Study 2), catering harmed investors' evaluations, while being authentic improved them. People experience greater anxiety and instrumentality when they cater to another person's preferences than when they behave authentically (Studies 3A and 3B). Compared to behaving authentically or to a control condition, catering harms performance because trying to anticipate and fulfill others' preferences feels instrumental and increases anxiety (Studies 4 and 5). Taken together, these results suggest that although people believe using catering in interpersonal first meetings will lead to successful outcomes, the opposite is true: catering creates undesirable feelings of instrumentality for the caterer, increases anxiety, and ultimately hinders performance.

We present a model of media coverage of corporate announcements. Firms strategically use the media to communicate corporate announcements to a group of traders who observe announcements not directly but through media reports. Journalists strategically select which announcements to report to readers. Media coverage inadvertently incentivizes firms to manipulate the underlying announcements. In equilibrium, media coverage is tilted towards less manipulated negative news. The presence of financial journalists leads to more manipulation but makes stock prices more informative on average. We provide additional predictions regarding the media's impact on the quality of firm announcements and stock prices.

We offer a new social approach to investment decision making and asset prices. Investors discuss their strategies and convert others to their strategies with a probability that increases in investment returns. The conversion rate is shown to be convex in realized returns. Unconditionally, active strategies (e.g., high variance and skewness) dominate, although investors have no inherent preference for these characteristics. The model has strong predictions for how the adoption of active strategies depends on investors's social networks. In contrast with nonsocial approaches, sociability, self-enhancing transmission, and other features of the communication process determine the popularity and pricing of active investment strategies.

Social interaction contributes to some traders' disposition effect. New data from an investment-specific social network linked to individual-level trading records builds evidence of this connection. To credibly estimate causal peer effects, I exploit the staggered entry of retail brokerages into partnerships with the social trading web platform and compare trader activity before and after exposure to these new social conditions. Access to the social network nearly doubles the magnitude of a trader's disposition effect. Traders connected in the network develop correlated levels of the disposition effect, a finding that can be replicated using workhorse data from a large discount brokerage.

Behavioral finance studies the application of psychology to finance, with a focus on individual-level cognitive biases. I describe here the sources of judgment and decision biases, how they affect trading and market prices, the role of arbitrage and flows of wealth between more rational and less rational investors, how firms exploit inefficient prices and incite misvaluation, and the effects of managerial judgment biases. There is a need for more theory and testing of the effects of feelings on financial decisions and aggregate outcomes. Especially, the time has come to move beyond behavioral finance to social finance, which studies the structure of social interactions, how financial ideas spread and evolve, and how social processes affect financial outcomes.

I discuss a new intellectual paradigm, social economics and finance--the study of the social processes that shape economic thinking and behavior. This emerging field recognizes that people observe and talk to each other. A key, underexploited building block of social economics and finance is social transmission bias: systematic directional shift in signals or ideas induced by social transactions. I use five "fables" (models) to illustrate the novelty and scope of the transmission bias approach, and offer several emergent themes. For example, social transmission bias compounds recursively, which can help explain booms, bubbles, return anomalies, and swings in economic sentiment.