Hiring as Exploration 24 May 2025 Danielle Li, Lindsey Raymond, and Peter BergmanThis paper views hiring as a contextual bandit problem: to find the best workers over time, firms must balance “exploitation” (selecting from groups with proven track records) with “exploration” (selecting from under-represented groups to learn about quality). Yet modern hiring algorithms, based on supervised learning approaches, are designed solely for exploitation. Instead, we build a resume screening algorithm that values exploration by evaluating candidates according to their statistical upside potential.
Complexity and Satisficing: Theory with Evidence from Chess 24 May 2025 Yuval Salant and Jörg L. SpenkuchWe develop a satisficing model of choice in which the available alternatives differ in their inherent complexity. We assume—and experimentally validate—that complexity leads to errors in the perception of alternatives’ values. The model yields sharp predictions about the effect of complexity on choice probabilities, some of which qualitatively contrast with those of maximization-based choice models.
Extreme Categories and Overreaction to News 18 May 2025 Spencer Kwon and Johnny TangWhat characteristics of news generate over-or-underreaction? We study the asset-pricing consequences of diagnostic expectations, a model of belief formation based on the representativeness heuristic, in a setting where news events are drawn from categories with extreme distributions of fundamentals. Our model predicts greater over-reaction to news belonging to categories with more extreme outliers, or tail events. We test our theory on a comprehensive database of corporate news that includes news from 24 different categories, including earnings announcements, product launches, M&A, business expansions, and client-related news.
Racial Discrimination and the Social Contract: Evidence from U.S. Army Enlistment during WWII 18 May 2025 Nancy Qian and Marco TabelliniThis paper documents that the Pearl Harbor attack triggered a sharp increase in volunteer enlistment rates of American men, the magnitude of the increase was smaller for Black men than for white men and the Black-white gap was larger in counties with higher levels of racial discrimination. The results suggest that political exclusion and discrimination can undermine support for the government during critical times such as war.
Cascades and Fluctuations in an Economy with an Endogenous Production Network 18 May 2025 Mathieu Taschereau-DumouchelThis paper studies the efficient allocation in an economy in which firms are connected through input-output linkages and must pay a fixed cost to produce. When economic conditions are poor, some firms might decide not to operate, thereby severing the links with their neighbors and changing the structure of the production network. Since producers benefit from having access to additional suppliers, nearby firms tend to operate, or not, together. As a result, the production network features clusters of operating firms, and the exit of a producer can create a cascade of firm shutdowns.
The Economics and Econometrics of Gene – Environment Interplay 11 May 2025 Pietro Biroli, Titus Galama, Stephanie von Hinke, Hans van Kippersluis, Cornelius A. Rietveld, and Kevin ThomWe discuss how to estimate the interplay between genes (nature) and environments (nurture), with an empirical illustration of the moderating effect of school-starting age on one’s genetic predisposition towards educational attainment. We argue that gene–environment (G × E) studies can be instrumental for (i) assessing treatment effect heterogeneity, (ii) testing theoretical predictions, and (iii) uncovering mechanisms, thereby improving understanding of how (policy) interventions affect population subgroups.
A Q-theory of Banks 11 May 2025 Juliane Begenau, Saki Bigio, Jeremy Majerovitz, and Matias VieyraBank capital requirements are based on book values, which are slow to reflect losses. In this paper, we develop a dynamic model of banks to study the interaction of regulation and delayed accounting. Our model explains four stylized facts: book and market values diverge during crises, the market-to-book ratio predicts future profitability, book leverage constraints rarely bind strictly even as market leverage fans out during crises, and banks delever gradually after net-worth shocks.
