Despite decades of research on heuristics and biases, empirical evidence on the effect of large incentives - as present in relevant economic decisions - on cognitive biases is scant. This paper tests the effect of incentives on four widely documented biases: base rate neglect, anchoring, failure...

This paper seeks to determine the approximate number of homeless persons in the U.S., the rate of change in the number, and whether or not the problem is likely to be permanent or transitory. It makes particular use of a new 1985 survey of over 503 homeless people in New York City. It finds: (1)...

What determines CEO incentives? A confusion exists among both academics and practitioners about how to measure the strength of CEO incentives, and how to reconcile the enormous differences in pay sensitivities between executives in large and small firms. We show that while one measure of CEO...

State guaranty funds are quasi-governmental agencies that provide insurance to policyholders against the risk of insurance company failure. But insurance provided by guaranty funds, like all insurance, creates moral hazard problems, especially for companies that are insolvent or near-insolvent....

The trouble with options is that too many options are granted to too many people. Most options are granted below the top-executive level, and options are often an inefficient way to attract, retain and motivate executives and (especially) lower-level employees. Why, then, are options so...

Although exercise prices for executive stock options can be set either below or above the grant-date market price, in practice virtually all options are granted at the money. We offer an economic rationale for this apparent puzzle, by showing that pay-to-performance incentives for risk-averse,...

We analyze and explore option fragility, the notion that option incentives are fragile due to their non-linear payoff structure. Option incentives become weaker as options fall underwater, leading to pressures to reprice options or restore incentives through additional grants of equity-based...

We employ a certainty-equivalence framework to analyze the cost, value and pay/performance sensitivity of non-tradable options held by undiversified, risk-averse executives. We derive quot;Executive Valuequot; lines, the risk-adjusted analogues to Black-Scholes lines. We show that distinguishing...

What determines CEO incentives? A confusion exists among both academics and practitioners about how to measure the strength of CEO incentives and how to reconcile the enormous differences in pay sensitivities between executives in large and small firms. We show that while one measure of CEO...