Publications

2024
Working Paper

How Inflation Expectations De-Anchor: The Role of Selective Memory Cues

By: Nicola Gennaioli, Marta Leva, Raphael Schoenle and Andrei Shleifer

In a model of memory and selective recall, household inflation expectations remain rigid when inflation is anchored but exhibit sharp instability during inflation surges, as similarity prompts retrieval of forgotten high-inflation experiences. Using data from the New... View Details

Keywords: Cognition and Thinking; Inflation and Deflation; Personal Finance

2023
Working Paper

How People Use Statistics

By: Pedro Bordalo, John J. Conlon, Nicola Gennaioli, Spencer Yongwook Kwon and Andrei Shleifer

We document two new facts about the distributions of answers in famous statistical problems: they are i) multi-modal and ii) unstable with respect to irrelevant changes in the problem. We offer a model in which, when solving a problem, people represent each hypothesis... View Details

Keywords: Decision Choices and Conditions; Microeconomics; Mathematical Methods; Behavioral Finance

Purchase

2022
Working Paper

Overreaction and Diagnostic Expectations in Macroeconomics

By: Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer

We present the case for the centrality of overreaction in expectations for addressing important challenges in finance and macroeconomics. First, non-rational expectations by market participants can be measured and modeled in ways that address some of the key challenges... View Details

Keywords: Overreaction; Rational Expectations; Macroeconomics; Market Participation; Social Psychology

April 2022
Article

Predictable Financial Crises

By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen

Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is... View Details

Keywords: Financial Crisis; Global Range; Forecasting and Prediction; Mathematical Methods

September 2021
Article

Diagnostic Bubbles

By: Pedro Bordalo, Nicola Gennaioli, Spencer Yongwook Kwon and Andrei Shleifer

We introduce diagnostic expectations into a standard setting of price formation in which investors learn about the fundamental value of an asset and trade it. We study the interaction of diagnostic expectations with two well-known mechanisms: learning from prices and... View Details

Keywords: Bubble; Speculation; Diagnostic Expectations; Price Bubble; Mathematical Methods

2021
Working Paper

Salience

By: Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer

We review the fast-growing work on salience and economic behavior. Psychological research shows that salient stimuli attract human attention “bottom up” due to their high contrast with surroundings, their surprising nature relative to recalled experiences, or their... View Details

Keywords: Salience; Economic Behavior; Bottom Up Attention; Microeconomics; Decision Making; Behavior

2021
Working Paper

Property Rights and Urban Form

By: Simeon Djankov, Edward L. Glaeser, Valeria Perotti and Andrei Shleifer

How do the different elements in the standard bundle of property rights, including those of possession and transfer, influence the shape of cities? This paper incorporates insecure property rights into a standard model of urban land prices and density, and makes... View Details

Keywords: Property; Rights; City; Development Economics; Global Range

Article

Memory and Representativeness

By: Pedro Bordalo, Katherine Baldiga Coffman, Nicola Gennaioli, Frederik Schwerter and Andrei Shleifer

We explore the idea that judgment by representativeness reflects the workings of episodic memory, especially interference. In a new laboratory experiment on cued recall, participants are shown two groups of images with different distributions of colors. We find that i)... View Details

Keywords: Cued Recall; Interference; Similarity; Probabilistic Judgments; Heuristics And Biases

2021
Working Paper

Real Credit Cycles

By: Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer and Stephen J. Terry

We incorporate diagnostic expectations, a psychologically founded model of overreaction to news, into a workhorse business cycle model with heterogeneous firms and risky debt. A realistic degree of diagnosticity, estimated from the forecast errors of managers of U.S.... View Details

Keywords: Econometric Models; Business Cycles; Credit

2020
Working Paper

Older People Are Less Pessimistic About the Health Risks of COVID-19

By: Pedro Bordalo, Katherine B. Coffman, Nicola Gennaioli and Andrei Shleifer

A central question for understanding behaviour during the COVID-19 pandemic, at both the individual and collective levels, is how people perceive the health and economic risks they face. We conducted a survey of over 1,500 Americans from May 6–13, 2020, to understand... View Details

Keywords: Health Pandemics; Risk and Uncertainty; Perception; Age

March 2019
Article

Beliefs about Gender

By: Pedro Bordalo, Katherine Baldiga Coffman, Nicola Gennaioli and Andrei Shleifer

We conduct laboratory experiments that explore how gender stereotypes shape beliefs about ability of oneself and others in different categories of knowledge. The data reveal two patterns. First, men’s and women’s beliefs about both oneself and others exceed observed... View Details

Keywords: Performance Evaluation; Perspective; Prejudice and Bias; Gender

January 2019
Article

Bubbles for Fama

By: Robin Greenwood, Andrei Shleifer and Yang You

We evaluate Eugene Fama's claim that stock prices do not exhibit price bubbles. Based on U.S. industry returns 1926–2014 and international sector returns 1985–2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio... View Details

Keywords: Bubble; Market Efficiency; Predictability; Price Bubble; Stocks; Price; Forecasting and Prediction

2018
Working Paper

Diagnostic Bubbles

By: Pedro Bordalo, Nicola Gennaioli, Spencer Yongwook Kwon and Andrei Shleifer

Keywords: Bubbles; Price Bubble; Mathematical Methods