This paper studies the impact of the confirmatory bias on financial markets. Building on Rabin and Schrag (1999), we propose a model in which some traders may ignore new evidence when it is inconsistent with their favorite hypothesis regarding the state of the world. The confirmatory bias...

In this paper, we study the nonemptiness and the shape of the exercise region of American options written on several assets. Our contribution is threefold. First, we state an analytic theorem which characterizes the nonemptiness of the exercise region. Second, we study a particular class of...

Can a principal still offer optimal dynamic contracts that are linear in end-of-period outcomes when the agent controls a process that exhibits memory? We provide a positive answer by considering a general Gaussian setting where the output dynamics are not necessarily semi-martingales or Markov...