ABSTRACT We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their projects and view external funds as unduly costly. Thus, they overinvest when have abundant internal funds, but curtail require financing. test hypothesis, using panel data on personal portfolio decisions of Forbes 500 CEOs. classify CEOs overconfident if persistently fail reduce exposure company‐specific risk. find is significantly more...

Journal Article Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?* Get access Ulrike Malmendier, Malmendier Search for other works by this author on: Oxford Academic Google Scholar Stefan Nagel The Quarterly of Economics, Volume 126, Issue 1, February 2011, Pages 373–416, https://doi.org/10.1093/qje/qjq004 Published: 01 2011

ABSTRACT We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions. First, managers who believe their firm is undervalued view external as overpriced, especially equity financing. Such overconfident use less finance and, conditional on accessing capital, issue than peers. Second, CEOs grew up during the Great Depression are averse to debt and lean excessively internal finance. Third, with military experience pursue more aggressive...

How do consumers choose from a menu of contracts? We analyze novel dataset three U.S. health clubs with information on both the contractual choice and day-to-day attendance decisions 7,752 members over years. The observed consumer behavior is difficult to reconcile standard preferences beliefs. First, who contract flat monthly fee $70 attend average 4.3 times per month. They pay price expected visit more than $17, even though they could $10 using 10-visit pass. On average, these users forgo...

Every year, 90% of Americans give money to charities. Is such generosity necessarily welfare enhancing for the giver? We present a theoretical framework that distinguishes two types motivation: individuals like give, example, due altruism or warm glow, and would rather not but dislike saying no, social pressure. design door-to-door fund-raiser in which some households are informed about exact time solicitation with flyer on their doorknobs. Thus, they can seek avoid fund-raiser. find reduces...

Abstract How do individuals form expectations about future inflation? We propose that overweight inflation experienced during their lifetimes. This approach modifies existing adaptive learning models to allow for age-dependent updating of in response surprises. Young update more strongly than older since recent experiences account a greater share accumulated lifetime history. find support these predictions using 57 years microdata on from the Reuters/Michigan Survey Consumers. Differences...

How do rational firms respond to consumer biases? In this paper we analyze the profit-maximizing contract design of if consumers have time-inconsistent preferences and are partially naive about it. We consider markets for two types goods: goods with immediate costs delayed benefits (investment goods) such as health club attendance, (leisure credit card-financed consumption. establish three features consumers. First, price investment below marginal cost. Second, leisure above Third, all...

Journal Article Superstar CEOs Get access Ulrike Malmendier, Malmendier University of California-Berkeley and National Bureau Economic Research Search for other works by this author on: Oxford Academic Google Scholar Geoffrey Tate California-Los Angeles The Quarterly Economics, Volume 124, Issue 4, November 2009, Pages 1593–1638, https://doi.org/10.1162/qjec.2009.124.4.1593 Published: 01 2009

Abstract This article presents the growing research area of Behavioural Corporate Finance in context one specific example: distortions corporate investment due to CEO overconfidence. We first review relevant psychology and experimental evidence on then summarise results Malmendier Tate (2005a) impact overconfidence investment. present supplementary relationship between CEOs’ press portrayals overconfident decisions. alternative approach measuring overconfidence, developed (2005b), relies...

Individuals sort into and out of economic environments based on their preferences in response to relative prices. We demonstrate the importance such sorting for measurement social preferences, using two laboratory experiments. First, allowing subjects avoid which sharing is possible significantly reduces sharing. This reveals existence a type individual who shares reluctantly, preferring opportunity share. Second, after subsidizing environment, aggregate amount shared increases, but less...

In this paper, we provide a theoretical and empirical framework that allows us to synthesize assess the burgeoning literature on CEO overconfidence. We also novel evidence overconfidence matters for corporate investment decisions in explicitly addresses endogeneity of firms' financing constraints.

Journal Article With a Little Help from My (Random) Friends: Success and Failure in Post-Business School Entrepreneurship Get access Josh Lerner, Lerner Search for other works by this author on: Oxford Academic Google Scholar Ulrike Malmendier The Review of Financial Studies, Volume 26, Issue 10, October 2013, Pages 2411–2452, https://doi.org/10.1093/rfs/hht024 Published: 01 January 2013

Why do people vote? We design a field experiment to estimate model of voting “because others will ask”. The expectation being asked motivates turnout if individuals derive pride from telling that they voted, or feel shame admitting did not vote, provided lying is costly. In door-to-door survey about election turnout, we experimentally vary (1) the informational content and use flyer pre-announcing survey, (2) duration payment for (3) incentives lie past voting. experimental results indicate...

Consumers rely on the price changes of goods in their grocery bundles when forming expectations about aggregate inflation. We use micro data that uniquely match individual expectations, detailed information consumption bundles, and item-level prices. The weights consumers assign to depend frequency purchase, rather than expenditure share, positive loom larger negative changes. Prices offered same store but not purchased do affect inflation nor other dimensions. Our results provide empirical...

Journal Article Do Security Analysts Speak in Two Tongues? Get access Ulrike Malmendier, Malmendier University of California, Berkeley Send correspondence to Devin Shanthikumar, The Paul Merage School Business, California Irvine, CA 92697; telephone: (949) 824-9653. E-mail: dshanthi@uci.edu. Search for other works by this author on: Oxford Academic Google Scholar Shanthikumar Irvine Review Financial Studies, Volume 27, Issue 5, May 2014, Pages 1287–1322, https://doi.org/10.1093/rfs/hhu009...

Significance Women and men expect systematically different levels of future inflation. This gender expectations gap can be detrimental for women’s economic choices long-term wealth, because it might reduce the effectiveness policies, induce stress, affect well being. Using data a representative US population, we document that traditional roles, rather than innate characteristics, shape gap. By doing most grocery shopping their households, women observe price signals men. Because prices are...

ABSTRACT We show that past inflation experiences strongly predict homeownership within and across countries. First, we collect novel survey data, which reveal protection to be a key motivation for homeownership, especially after high experiences. Second, using household data from 22 European countries, find higher exposure historical predicts rates. estimate similar associations among immigrants the United States who experienced different in their home countries but face same U.S. housing...

We explore behavioral explanations for sub-optimal corporate investment decisions. Focusing on the sensitivity of to cash flow, we argue that personal characteristics chief executive officers, in particular overconfidence, can account this widespread and persistent distortion. Overconfident CEOs overestimate quality their projects view external finance as unduly costly. As a result, they invest more when have internal funds at disposal. test overconfidence hypothesis, using data portfolio...

We analyze the impact of CEO overconfidence on mergers and acquisitions. Overconfident CEOs over-estimate their ability to generate returns, both in current firm potential takeover targets. Thus, margin, they undertake that destroy value. Overconfidence also implies managers view company as undervalued by outside investors. Therefore, is strongest when can finance internally. test these predictions using merger decisions a sample Forbes 500 companies between 1980 1994. classify overconfident...