Rational investors and firm managers should make decisions based on information in the units that actually matter: real dollars that translate into purchasing power. In this session on the intersection between behavioral finance and corporate finance, Professor Kelly Shue shares her research about how investors and managers evaluate information in the wrong units when making business decisions. Topics covered include how: (1) managers focus on the number rather than the Black-Scholes value of option grants, (2) investors price financial news using dollar changes rather than percentage changes, and (3) ESG investors focus on the percentage rather than level of reductions in firm pollution.
