Hogarth and Einhorn (1990) posited a psychological model for updating beliefs that is based on an anchoring and adjustment process which incorporates a contrast or surprise effect; in particular, the larger the current belief in a hypothesis or outcome, the more it is discounted by negative...

The dominant theory of individual decision making under uncertainty is the von Neumann and Morgenstern's expected utility model (EUM). Although, this model has gained its popularity from its ability to explain a wide range of attitudes toward risk, empirical evidence over the last three decades...

Prior research demonstrates that share prices reflect a risk premium that is associated with earnings variability. This suggests that managers can reduce the cost of capital and increase share prices by reducing earnings variability. In this study, we investigate bank managers' use of discretion...