High-quality producers in a market where quality varies can reap superior profits by charging higher prices, selling greater quantities, or both. Empirical analyses of the mutual fund and automobile industries show that high-quality producers sell more units than their low-quality competitors,...

Most real decisions, unlike those of economics texts, have a status quo alternative--that is, doing nothing or maintaining one's current or previous decision. A series of decision-making experiments shows that individuals disproportionately stick with the status quo. Data on the selections of...

A principal provides budgets to agents (e.g., divisions of a firm or the principal’s children) whose expenditures provide her benefits, either materially or because of altruism. Only agents know their potential to generate benefits. We prove that if the more “productive” agents are also...

Amos Tversky investigated and explained a wide range of phenomena that lead to anomalous human decisions. His two most significant contributions, both written with Daniel Kahneman, are the decision-making heuristics--representativeness, availability, and anchoring--and prospect theory. Tversky's...

We analyze the risk level chosen by agents who have private information regarding their quality. We show that even risk-neutral agents will choose risk strategically to enhance their reputation in the market, and that such choices will be influenced by the mix of other agents' types. Assuming...

Will a more risk-averse individual spend more or less to improve probabilities, say on marketing efforts that enhance the chance of a sale? For any two payoffs and starting probabilities, the answer is unfortunately indeterminate. However, interpreting gambling as increasing small chances of...

Hurricane Katrina did massive damage because New Orleans and the Gulf Coast were not appropriately protected. Wherever natural disasters threaten, the government—in its traditional role as public goods provider—must decide what level of protection to provide to an area. It does so by...