The paper explores the "hidden costs of rewards" in a dynamic principal-agent framework, in which an informed principal selects in each period a reward for an agent. It shows that rewards are often addictive in that once offered, a contingent reward makes the agent expect it whenever a similar...

We propose a model in which an entrepreneur, seeking outside financing, sells a large equity share to an outside blockholder in order to signal his low propensity to extract private benefits. A conventional theoretical rationale for the presence of an outside blockholder is mitigation of the...

This paper offers a new explanation of value-reducing mergers and stock market driven takeovers by introducing recent research on aspiration levels and individual decision making under risk. If market valuation constitutes an aspiration level for managers, we show that managers may be tempted to...

We test experimentally an explanation of over and under confidence as motivated by (perhaps unconscious) strategic concerns, and find compelling evidence supporting this hypothesis in the behavior of participants who send and respond to others’ statements of confidence about how well they have...

We analyze discrimination against less attractive people on a TV game show with high stakes. The game has a rich structure that allows us to disentangle the relationship between attractiveness and the determinants of a player’s earnings. Unattractive players perform no worse than attractive...

We investigate whether experimental subjects can predict behavior in a prisoner's dilemma played on a TV show. Subjects report probabilistic beliefs that a player cooperates, before and after the players communicate. Subjects correctly predict that women and players who make a voluntary promise...