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In The Military Lens, Christopher P. Twomey shows how differing military doctrines have led to misperceptions between the United States and China over foreign policy-and the potential dangers these might pose in future relations. Because of their different strategic situations, histories, and military cultures, nations may have radically disparate definitions of effective military doctrine, strategy, and capabilities. Twomey argues that when such doctrines-or \"theories of victory\"-differ across states, misperceptions about a rival's capabilities and intentions and false optimism about one's own are more likely to occur. In turn, these can impede international diplomacy and statecraft by making it more difficult to communicate and agree on assessments of the balance of power. When states engage in strategic coercion-either to deter or to compel action-such problems can lead to escalation and war. Twomey assesses a wide array of sources in both the United States and China on military doctrine, strategic culture, misperception, and deterrence theory to build case studies of attempts at strategic coercion during Sino-American conflicts in Korea and the Taiwan Strait in the early years of the Cold War, as well as an examination of similar issues in the Arab-Israeli conflict. After demonstrating how these factors have contributed to past conflicts, Twomey amply documents the persistence of hazardous miscommunication in contemporary Sino-American relations. His unique analytic perspective on military capability suggests that policymakers need to carefully consider the military doctrine of the nations they are trying to influence. In The Military Lens , Christopher P. Twomey shows how differing military doctrines have led to misperceptions between the United States and China over foreign policy-and the potential dangers these might pose in future relations. Because of their different strategic situations, histories, and military cultures, nations may have radically disparate definitions of effective military doctrine, strategy, and capabilities. Twomey argues that when such doctrines-or \"theories of victory\"-differ across states, misperceptions about a rival's capabilities and intentions and false optimism about one's own are more likely to occur. In turn, these can impede international diplomacy and statecraft by making it more difficult to communicate and agree on assessments of the balance of power. When states engage in strategic coercion-either to deter or to compel action-such problems can lead to escalation and war. Twomey assesses a wide array of sources in both the United States and China on military doctrine, strategic culture, misperception, and deterrence theory to build case studies of attempts at strategic coercion during Sino-American conflicts in Korea and the Taiwan Strait in the early years of the Cold War, as well as an examination of similar issues in the Arab-Israeli conflict. After demonstrating how these factors have contributed to past conflicts, Twomey amply documents the persistence of hazardous miscommunication in contemporary Sino-American relations. His unique analytic perspective on military capability suggests that policymakers need to carefully consider the military doctrine of the nations they are trying to influence.

The author argues that the aggregate demand/aggregate supply (AD/AS) model is significantly improved-although certainly not perfected-by trimming it of the short-run aggregate supply (SRAS) curve. Problems with the SRAS curve are shown first for the AD/AS model that casts the AD curve as identifying the equilibrium level of output associated with each price level (as found in most intermediate macroeconomics textbooks). Problems are then shown for the AD/AS model in which the AD curve is more modestly assumed to capture the relationship between the price level and aggregate expenditures (as found in principles of economics textbooks).

This appearance condition of fallacies refers to the phenomenon of weak arguments, or moves in argumentation, appearing to be okay when really they aren’t. Not all theorists agree that the appearance condition should be part of the conception of fallacies but this essay explores some of the consequences of including it. In particular, the differences between committing a fallacy, causing a fallacy and observing a fallacy are identified. The remainder of the paper is given over to discussing possible causes of mistakenly perceiving weak argumentation moves as okay. Among these are argument caused misperception, perspective caused misperception, discursive environment caused misperception and perceiver caused misperception. The discussion aims to be sufficiently general so that it can accommodate different models and standards of argumentation that make a place for fallacies.

Alarmist narratives about online misinformation continue to gain traction despite evidence that its prevalence and impact are overstated. Drawing on research examining the use of big data in social science and reception studies, we identify six misconceptions about misinformation and highlight the conceptual and methodological challenges they raise. The first set of misconceptions concerns the prevalence and circulation of misinformation. First, scientists focus on social media because it is methodologically convenient, but misinformation is not just a social media problem. Second, the internet is not rife with misinformation or news, but with memes and entertaining content. Third, falsehoods do not spread faster than the truth; how we define (mis)information influences our results and their practical implications. The second set of misconceptions concerns the impact and the reception of misinformation. Fourth, people do not believe everything they see on the internet: the sheer volume of engagement should not be conflated with belief. Fifth, people are more likely to be uninformed than misinformed; surveys overestimate misperceptions and say little about the causal influence of misinformation. Sixth, the influence of misinformation on people’s behavior is overblown as misinformation often “preaches to the choir.” To appropriately understand and fight misinformation, future research needs to address these challenges.

We study a seller’s optimal pricing and inventory strategies when behavioral (nonpecuniary) motives affect consumers’ purchase decisions. In particular, the seller chooses between two pricing strategies, markdown or everyday low price, and determines the optimal prices and inventory level. Two salient behavioral motives that impact consumers’ purchase decisions and the seller’s optimal strategies are anticipated regret and misperception of product availability. Regret arises when a consumer initially chooses to wait but encounters stockout later, or when the consumer buys the product at the high price but realizes that the product is still available at the markdown price. In addition, consumers often perceive the product’s future availability to be different than its actual availability. We determine and quantify that both regret and availability misperception have significant operational and profit implications for the seller. For example, ignoring these behavioral factors can result in up to 10% profit losses. We contrast the roles of consumers’ strategic (pecuniary) motives with their behavioral (nonpecuniary) motives in affecting purchase, pricing, and inventory decisions. The presence of the behavioral motives reinstates the profitability of markdown over everyday low price, in sharp contrast to prior studies of only strategic motives that suggest the contrary. We characterize how and why strategic versus behavioral motives affect decisions in distinctive manners. In doing so, this paper also introduces and determines the behavioral benefits of pricing in leveraging consumers’ behavioral regularities. We advocate that tactics that may intensify consumers’ misperception of availability, such as disclosing low inventory levels, can have a far-reaching impact on improving the seller’s profit. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2147 . This paper was accepted by Yossi Aviv, operations management .

The favorite–long shot bias describes the long-standing empirical regularity that betting odds provide biased estimates of the probability of a horse winning: long shots are overbet whereas favorites are underbet. Neoclassical explanations of this phenomenon focus on rational gamblers who overbet long shots because of risk-love. The competing behavioral explanations emphasize the role of misperceptions of probabilities. We provide novel empirical tests that can discriminate between these competing theories by assessing whether the models that explain gamblers’ choices in one part of their choice set (betting to win) can also rationalize decisions over a wider choice set, including compound bets in the exacta, quinella, or trifecta pools. Using a new, large-scale data set ideally suited to implement these tests, we find evidence in favor of the view that misperceptions of probability drive the favorite–long shot bias, as suggested by prospect theory.

We present a decision-theoretic analysis of an agent's understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her (possibly misspecified) beliefs.

This paper presents three initial stylized facts from the Vehicle Ownership and Alternatives Survey (VOAS), a nationally representative survey that elicits consumers' beliefs about gasoline prices and the relative energy costs of autos with different fuel economy ratings. First, American consumers devote little attention to fuel costs when purchasing autos. Second, consistent with a cognitive bias called “MPG Illusion,” consumers underestimate the fuel cost differences between low-MPG vehicles and overestimate the differences between high-MPG vehicles. Third, Americans' mean and median expected future gas prices were above current prices and predictions of the futures market at the time of the survey. Although it is often argued that misperceived energy costs justify policies to encourage the sale of energy efficient durable goods, these results show that misperceptions and expectations that differ from market information could either increase or decrease energy efficiency.

Sexual and romantic partners tend to match on various dimensions of mate value including physical attractiveness. Men may be motivated to inflate their self-perceived physical attractiveness to justify pursuing highly attractive women. In the present research, heterosexual men (N = 180) received random assignment to a two-way between-participants factorial design that tested the effects of a woman’s physical attractiveness (low vs. high) and the recipient of her ambiguous sexual behavior (the participant himself or another man) on men’s ratings of her sexual intent. Participants rated that attractive women had greater sexual intent compared to unattractive women, but only when the participant himself was the recipient of women’s behavior. Men’s self-perceived physical attractiveness did not vary as a function of the woman’s physical attractiveness except when another man was the recipient of a physically attractive woman’s behavior, which reduced men’s perceptions of their physical attractiveness. Findings suggested that men’s self-perceptions and women’s appearance may bias men’s sexual judgment.

In the presence of lenders’ wrong perception of collateral quality, haircuts help to reduce the excessive financing costs due to the gap between lenders’ perceived and actual risk. We study the credit cycles driven by the dynamic interaction between the terms of the collateralized loan contracts and lenders’ beliefs. Risky loans are more sensitive to collateral quality information than safe loans because defaults reveal the information about collateral quality. Endogenously determined information revelation can explain the increases in haircuts during the recent financial crisis and the positive relationship between the long quiet period and the impact of the crisis. The asymmetry between boom and bust dynamics can explain the difference in the opacity of collateralized loan contracts, the asymmetric impacts of revealed good and bad news, and can help to predict financial crises. A macroprudential policy of setting a minimum haircut can reduce output fluctuation, and a policy combining a minimum haircut and a collateral insurance can both stabilize the economy and further improve social welfare.