How Much “Rationality” Is There In Bond Market Expectations, Kenneth Singletonįor the working paper version of David Hirshleifer’s Presidential Address, “Social Transmission Bias in Economics and Finance,” please see: Implications and avenues for future research are discussed. Non-behavioral models with costly biases can also account for some of the themes. A model of satisficing decision-making aligns with many of these practice-of-finance characteristics: optimization is difficult in a complex fast-changing world, so managers use simple rules to make incremental improvements and they stick with rules that have worked well enough in the past. These themes can be used to guide and discipline academic models and tests, with the aim of better explaining outcomes. These common elements of real-world corporate finance indicate that companies make decisions based on internal forecasts that are miscalibrated and thought to be reliable only two years out use decision rules that are conservative, sticky, simple, and that attempt to market time and, emphasize corporate objectives that increasingly focus on stakeholders and revenues.
This paper uses CFO surveys to compare corporate planning and decisions in 2022 with those from two decades prior, which allows me to identify decision-making themes that are common across policies and through time. Supplemental materials, including teaching graphs and the transcript of the Presidential Address can be found here: The Presidential Address paper can be found here:
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