We test whether individuals with incentivized directional preferences akin to investors taking a long position in a stock are more prone to forming biased beliefs than individuals with incentives akin to those of short investors. Extending motivated reasoning theory with insights from psychology...

An enduring issue in financial reporting is whether and how salient summary measures of firm performance (“earnings metrics”) affect market price efficiency. In laboratory markets, we test the effects of salient earnings metrics, which vary in how they combine persistent and transitory...

In this study we use an experiment to examine whether home bias is caused, at least in part, by a psychological bias that can be reduced by highlighting concrete language in disclosures. Our results show that, when abstract language is highlighted in a prospectus, prospective investors are...

We examine how investors' estimates of fundamental value are causally influenced by a firm's corporate social responsibility (CSR) performance. We also examine how investor assessment of CSR performance moderates its influence over their fundamental-value estimates. Consistent with psychology...

Individuals who evaluate business-related risks often have a preference or goal for the business to perform well. In this paper, we test how such a directional goal affects risk perceptions and the relation between risk perceptions and assessments of value in an investment context. Compared to...

As part of its push for more plain English in disclosures, the SEC argues that firms should use more concrete language in order to make abstract concepts clearer to investors. In this study, we use an experiment to show that, when concrete language is highlighted in a prospectus, investors are...