Publications

Forthcoming
Bordalo, Pedro, Nicola Gennaioli, Rafael LaPorta, Matthew OBrien, and Andrei Shleifer. Forthcoming. “Long Term Expectations and Aggregate Fluctuations.” NBER Macroeconomics Annual.
PDF, Current Version, May 2023
Bordalo, Pedro, Giovanni Burro, Katie Coffman, Nicola Gennaioli, and Andrei Shleifer. Forthcoming. “Imagining the Future: Memory, Simulation, and Beliefs.” Review of Economic Studies.
PDF, Current Version, November 2023 Appendix, November 2023
Bordalo, Pedro, Nicola Gennaioli, Rafael LaPorta, and Andrei Shleifer. Forthcoming. “Belief Overreaction and Stock Market Puzzles.” Journal of Political Economy. Abstract
We construct an index of long term expected earnings growth for S&P500 firms and show that it has remarkable power to jointly predict future errors in these expectations and stock returns, in both the aggregate market and the cross section. The evidence supports a mechanism whereby good news cause investors to become too optimistic about long term earnings growth, for the market as a whole but especially for a subset of firms. This leads to inflated stock prices and, as beliefs are systematically disappointed, to subsequent low returns in the aggregate market and for the subset of firms. Overreaction of long-term expectations helps resolve major asset pricing puzzles without time series or cross-sectional variation in required returns.
PDF, Current Version, June 2023
2023
Bordalo, Pedro, John Conlon, Nicola Gennaioli, Spencer Y. Kwon, and Andrei Shleifer. 2023. “Memory and Probability.” Quarterly Journal of Economics 138 (1): 265–311.
PDF, Published Version, February 2023
2022
Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2022. “Overreaction and Diagnostic Expectations in Macroeconomics.” Journal of Economic Perspectives 36 (3): 223–244.
PDF, Published Version, Summer 2022
Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2022. “Salience.” Annual Review of Economics, 2022 14: 521-544.
PDF, Published Version, 2022
Shleifer, Andrei, Edward L. Glaesar, Simeon Djankov, and Valeria Perotti. 2022. “Property Rights and Urban Form.” The Journal of Law and Economics 65 (S1). Publisher's Version Abstract
How do the different elements in the standard bundle of property rights – such as the right of possession or the right of transfer – differentially impact outcomes, such as urban development? This paper incorporates insecure property rights into a standard model of urban land prices and density, and makes predictions about investment in land and property, informality, and the efficiency of land use. Our empirical analysis links data on institutions related to land titling and transfer with multiple urban outcomes, from 190 countries. The evidence is generally consistent with the model’s predictions, and more broadly with the Demsetz’s (1967) approach to property rights institutions. Indeed, we document world-wide improvements in the quality of institutions facilitating property transfer over time.    
PDF, current version, May 2022
Greenwood, Robin, Samuel G. Hanson, Andrei Shleifer, and Jakob Ahm Sørensen. 2022. “Predictable Financial Crises.” Journal of Finance.
PDF, current version, March 2022 Appendix, January 2022 Replication Kit
Bosio, Erica, Simeon Djankov, Edward L. Glaeser, and Andrei Shleifer. 2022. “Public Procurement in Law and Practice.” American Economic Review 112 (4). Abstract

We examine a new data set of laws and practices governing public procurement, as well as procurement outcomes, in 187 countries.  We measure regulation as restrictions on discretion of the procuring agents.  We find that laws and practices are highly correlated with each other across countries, better practices are correlated with better outcomes, but laws themselves are not correlated with outcomes.  To shed light on this puzzle, we present a model of procurement in which both regulation and public sector capacity determine the efficiency of procurement. In the model, regulation is effective in countries with low public sector capacity, and detrimental in countries with high public sector capacity because it inhibits the socially optimal exercise of discretion.  We find evidence broadly consistent with this prediction: regulation of procurement improves outcomes, but only in countries with low public sector capacity.

PDF, current version, April 2022 Replication Kit
Gennaioli, Nicola, Rafael LaPorta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2022. “Trust and Insurance Contracts.” Review of Financial Studies 35 (12): 5287–5333. Abstract

We assemble and analyze a new data set of homeowner insurance claims from 28 independently operated country subsidiaries of a multinational insurance company. A fundamental feature of the data is that such claims are often disputed, and lead to rejections or lower payments. We propose a new model of insurance, in which consumers can make invalid claims and firms can deny valid claims. In this environment, trust and honesty are critical factors that shape insurance contracts and the payment of claims, especially when the disputed amounts are too small for courts. We characterize equilibrium insurance contracts, and show how they depend on the quality of the legal system and the level of trust. We then investigate the incidence of claims, disputes and rejections of claims, and payment of claims in our data, as well as the cost and pricing of insurance. The evidence is consistent with the centrality of trust for insurance markets, as predicted by the model.

PDF, Published Version, December 2022
2021
Bordalo, Pedro, Katherine Coffman, Nicola Gennaioli, Frederik Schwerter, and Andrei Shleifer. 2021. “Memory and Representativeness.” Psychological Review. Abstract

We explore the idea that judgment by representativeness reflects the workings of episodic memory, especially interference. In a new laboratory experiment on cued recall, participants are shown two groups of images with different distributions of colors. We find that i) decreasing the frequency of a given color in one group significantly increases the recalled frequency of that color in the other group, ii) for a fixed set of images, different cues for the same objective distribution entail different interference patterns and different probabilistic assessments. Selective retrieval and interference may offer a foundation for the representativeness heuristic, but more generally for understanding the formation of probability judgments from experienced statistical associations.

PDF, current version, January 2021 Supplementary Information
Bordalo, Pedro, Nicola Gennaioli, Spencer Yongwook Kwon, and Andrei Shleifer. 2021. “Diagnostic Bubbles.” Journal of Financial Economics 141 (3). Abstract
We introduce diagnostic expectations into a standard setting of price formation in which investors learn about the fundamental value of an asset and trade it. We study the interaction of diagnostic expectations with two well-known mechanisms: learning from prices and speculation (buying for resale). With diagnostic (but not with rational) expectations, these mechanisms lead to price paths exhibiting three phases: initial underreaction, followed by overshooting (the bubble), and finally a crash. With learning from prices, the model generates price extrapolation as a byproduct of fast moving beliefs about fundamentals, which lasts only as the bubble builds up. When investors speculate, even mild diagnostic distortions generate substantial bubbles.
PDF, current version, July 2021
Behrer, A. Patrick, Edward L. Glaeser, Giacomo A. M. Ponzetto, and Andrei Shleifer. 2021. “Securing Property Rights.” Journal of Political Economy. Abstract

A central challenge in securing property rights is the subversion of justice through legal skill, bribery, or physical force by the strong—the state or its powerful citizens—against the weak. We present evidence that undue influence on judges is a common concern in many countries, especially among the poor. We then present a model of a water polluter whose discharges contaminate adjacent land. If this polluter can subvert the assessment of damages caused by his activity, there is an efficiency case for granting the landowner the right to an injunction that stops the polluter, rather than the right to compensation for the harm. If the polluter can subvert even the determination of his responsibility for harm, there is an efficiency case for regulation that restricts pollution regardless of its effects. We then conduct an empirical analysis of water quality in the U.S. before and after the Clean Water Act, and show how regulation brought about cleaner water, particularly in states with higher corruption.

PDF, current version, April 2021 Appendix
2020
Bordalo, Pedro, Nicola Gennaioli, Yueran Ma, and Andrei Shleifer. 2020. “Overreaction in Macroeconomic Expectations.” American Economic Review, 110, 9, 2748-82.
PDF, current version, September 2020 Appendix
Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2020. “Memory, Attention, and Choice.” Quarterly Journal of Economics 135 (3): 1399–1442.
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2019
Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2019. “Memory and Reference Prices: an Application to Rental Choice.” AER Papers and Proceedings 109: 572–576.
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Bordalo, Pedro, Katie Coffman, Nicola Gennaioli, and Andrei Shleifer. 2019. “Beliefs about Gender.” American Economic Review 109 (3): 739-773. Abstract
We conduct laboratory experiments that explore how gender stereotypes shape beliefs about ability of oneself and others in different categories of knowledge. The data reveal two patterns. First, men’s and women’s beliefs about both oneself and others exceed observed ability on average, particularly in difficult tasks. Second, overestimation of ability by both men and women varies across categories. To understand these patterns, we develop a model that separates gender stereotypes from mis-estimation of ability related to the difficulty of the task. We find that stereotypes contribute to gender gaps in self-confidence, assessments of others, and behavior in a cooperative game.
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Bordalo, Pedro, Nicola Gennaioli, Rafael LaPorta, and Andrei Shleifer. 2019. “Diagnostic Expectations and Stock Returns.” Journal of Finance 74 (6): 2839-2874. Abstract

We revisit La Porta's finding that returns on stocks with the most optimistic analyst long‐term earnings growth forecasts are lower than those on stocks with the most pessimistic forecasts. We document the joint dynamics of fundamentals, expectations, and returns of these portfolios, and explain the facts using a model of belief formation based on the representativeness heuristic. Analysts forecast fundamentals from observed earnings growth, but overreact to news by exaggerating the probability of states that have become more likely. We find support for the model's predictions. A quantitative estimation of the model accounts for the key patterns in the data.

PDF Internet Appendix
Greenwood, Robin, Andrei Shleifer, and Yang You. 2019. “Bubbles for Fama.” Journal of Financial Economics 131 (1): 20-43. Abstract

We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in US and international samples.

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2018
Barberis, Nicholas, Robin Greenwood, Lawrence Jin, and Andrei Shleifer. 2018. “Extrapolation and Bubbles.” Journal of Financial Economics 129 (2): 203-227.
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