Behavioral Finance.

• Position: Program and Working Group Meetings

The NBER's Behavioral Finance group met on November 22 in Cambridge. Brad Barber, University of California, Davis, and Terrance Odean, Hass School of Business at Berkeley, organized the meeting, These papers were discussed:

Camelia M. Kuhnen and Agnieszka Tymula, Northwestern University, "Rank Expectations, Feedback, and Social Hierarchies"

Discussant: Shimon Kogan, University of Texas, Austin

Hart Ozsoylev, University of Oxford, and Johan Walden, University of California, Berkeley, "Asset Pricing in Large Information Networks"

Discussant: Xavier Gabaix, New York University and NBER

Nicola Gennaioli, CREI, and Andrei Shleifer, Harvard University and NBER, "Local Thinking"

Discussant: Drazen Prelec, MIT

Roger M. Edelen, University of California, Davis; Richard Evans, University of Virginia; and Gregory B. Kadlec, Virginia Tech, "What Do Soft-Dollars Buy? Performance, Expense Shifting, Agency Costs"

Discussant: Lori Walsh, Securities and Exchange Commission

Randy Cohen, Harvard University; and Christopher Polk and Bernard Silli, London School of Economics, "Best Ideas"

Discussant: Clemens Sialm, University of Texas, Austin and NBER Harrison Hong, Princeton University, and Leonard Kostovetsky, University of Rochester, "Red and Blue Investing: Values and Finance"

Discussant: Raymond Fisman, Columbia University and NBER

Kuhnen and Tymula develop and test a theoretical model of the role of self-esteem--generated by private feedback regarding relative performance--on the behavior of agents working on a simple task for a flat wage. The authors isolate the impact on one's output of learning one's rank in the group as opposed to the effect of any reputation, strategy-updating, or peer-monitoring effects. Feedback has both ex-ante and ex-post effects on the productivity of workers and on the dynamics of social hierarchies. Agents work harder and expect to rank better when they are told they may learn their ranking, relative to cases when they are told that feedback will not be provided. After receiving feedback, individuals who learn that they have ranked better than expected decrease their output, but they expect an even better rank in the future; those told they ranked worse than expected will increase their output and at the same time lower their expectations of rank going forward. These effects are stronger in earlier rounds of the task, while subjects learn how they compare to their peers. This rank hierarchy is established early on, and remains...