One of the most puzzling findings in asset pricing is that expected returns dominate variation in the dividend-to-price ratio, leaving little room for dividend growth rates. Even more puzzling is that this dominance only emerged after 1945. We develop a present value model to argue that a general increase in equity duration can explain these findings. As cash flows to investors accrue further into the future, shocks to highly persistent expected returns become relatively more important than shocks to growth rates. We provide supportive empirical evidence from dividend strips, the time-series, and the cross-section of stocks.

We develop a model of financial crises with both a financial amplification mechanism, via frictional intermediation, and a role for sentiment, via time-varying beliefs about an illiquidity state. We confront the model with data on credit spreads, equity prices, credit, and output across the financial crisis cycle. In particular, we ask the model to match data on the frothy pre-crisis behavior of asset markets and credit, the sharp transition to a crisis where asset values fall, disintermediation occurs and output falls, and the post-crisis period characterized by a slow recovery in output. We find that a pure amplification mechanism quantitatively matches the crisis and aftermath period but fails to match the pre-crisis evidence. Mixing sentiment and amplification allows the model to additionally match the pre-crisis evidence. We consider two versions of sentiment, a Bayesian belief updating process and one that overweighs recent observations. We find that both models match the crisis patterns qualitatively, generating froth pre-crisis, non-linear behavior in the crisis, and slow recovery. The non-Bayesian model improves quantitatively on the Bayesian model in matching the extent of the pre-crisis froth.

Conjoint experiments enjoy increasing popularity in political and social science, but there is a paucity of research on respondents' underlying decision-making processes. We leverage eye-tracking methodology and a conjoint experiment, administered to a subject pool consisting of university students and local community members, to examine how respondents process information when completing conjoint surveys. Our study has two main findings. First, we find a positive correlation between attribute importance measures inferred from the stated choice data and attribute importance measures based on eye movement. This validation test supports the interpretation of common conjoint metrics, such as Average Marginal Component Effects and marginal R^2 values, as valid measures of attribute importance. Second, when we experimentally increase the number of attributes and profiles in the conjoint table, respondents on average view a larger absolute number of cells but a smaller fraction of the total cells displayed, and the patterns in which they search between cells change conditionally. At the same time, however, their stated choices remain remarkably stable. This overall pattern speaks to the robustness of conjoint experiments and is consistent with a bounded rationality mechanism. Respondents can adapt to complexity by selectively incorporating relevant new information to focus on the important attributes, while ignoring less relevant information to reduce the cognitive processing costs. Together, our results have implications for both the design and interpretation of conjoint experiments.

We provide an equilibrium analysis of the efficiency properties of simultaneous bilateral tariff negotiations in a three-country model of international trade. We consider the setting in which discriminatory tariffs are allowed, and we utilize the “Nash-in-Nash” solution concept of Horn and Wolinsky (1988). We allow for a general family of political-economic country welfare functions and assess efficiency relative to these welfare functions. We establish a sense in which the resulting tariffs are inefficient and too low, so that excessive liberalization occurs from the perspective of the three countries.

In recent years, some prominent scholars have been making a surprising claim: examining literary texts for hidden depths is overblown, misguided, or indeed downright dangerous. Such examination, they've warned us, may lead to the loss of world Heidegger warned of (Gumbrecht), to the world-denying metaphysics Nietzsche warned of (Nehamas), or to the suspicious form of hermeneutics Ricoeur warned of (Best, Marcus, Moi). This paper seeks to suggest that, though the concerns are understandable, there's ultimately nothing to worry about. The fact that Nietzsche himself happily used metaphors of surface and depth suggests that they are not, in fact, metaphysically fraught. The fact that it's possible to appreciate surfaces at the same time as depths means that there's no real danger of losing the world. And as for depth-talk turning us into suspicious hermeneuts, that would happen only if we made two fallacious assumptions: first, that all depths are meanings; second, that all hidden features are in a text by accident. But since plenty of authors hide things deliberately, and since what's hidden often has nothing to do with propositional content, both assumptions are profoundly mistaken. Meanwhile, the surface/depth metaphor is the only thing that adequately captures the phenomenology of reading, especially when it comes to misdirection-based, hermetic, enigmatic, ironic, or satirical texts, where special activity on our part prompts a sudden leap to a radically different mode of understanding. And unlike its rivals, the surface/depth metaphor reflects a real asymmetry: depths explain surfaces, but not vice versa; surfaces are available without depths, but not the other way around. We need the metaphor, and we need to stay open to hidden depths as we read. As long as we don't come in with terrible assumptions, nothing bad will happen to us, and plenty of good things will. It's perfectly safe to go back in the water.