What is a rational decision-maker supposed to do when facing an unfamiliar problem, where there is uncertainty but no basis for making probabilistic assessments? One answer is to use a form of expected utility theory, and assume that agents assign their own subjective probabilities to each...

This paper examines experimentally the reputation building role of disclosure in an investment / trust game. It provides experimental evidence in support of sequential equilibrium behavior in a finitely repeated investment / trust game where information asymmetry raises the possibility of...

We analyse how soft information acquired at a cost by a lender affects the debt contract between the lender and a project manager, and the manager's incentive to invest in a specific asset. Under certain conditions, the lender chooses to acquire soft information about the profitability of the...

This article analyzes the role of information in building reputation in an investment/trust game. The model allows for information asymmetry in a finitely repeated sender-receiver game and solves for sequential equilibrium to show that if there are some trustworthy managers who always disclose...

Smith and Wilson (2019) posit that we self-regulate our actions to conform with what we believe is socially appropriate. The mechanism is Adam Smith's “Impartial Spectator,” a fictitious individual constructed in the mind who helps us predict whether our actions and motivations will earn...

A common view is that verified earnings reports encourage investment through improved transparency. We lack direct evidence on this foundational proposition because researchers cannot observe counterfactuals where a manager either: (1) must remain silent about performance or (2) can make any...

This paper analyzes a model of investment and return in an economy characterized by information asymmetry between an investor and a manager. The realized value of the uncertain state of nature is the manager's private information. The paper first considers an economy where the manager cannot...

Investor disagreement about public information precision can be pervasive and persistent. This paper shows that when investors agree to disagree about an observed public signal's precision, as they disagree more, informational price efficiency increases. By contrast, when investors disagree...

Using an experimental design, we examine whether CEO race and CEO gender affect investors’ willingness to invest in a company, their forecasts of future performance, and their evaluations of CEO performance, when given narrative and financial information about a firm. We deliberately avoid...