5. Discussion and conclusions
As noted at the end of the last section in connection to Proposition 10, an alternative interpretation of at least some of these models is not that the employers (boards, shareholders) suffer from a cognitive bias, but instead differ (perhaps relative to past situations) in the precision of their prior information. If their prior knowledge is less precise, then necessarily more weight is put on current signals. As suggested in connection to Proposition 10, this can be useful for explaining various trends in corporate governance.
The analysis could also arguably be used cross-sectionally or to explain differences across countries. For example, in a new industry, in which no one has much of a track record, priors are going to be imprecise and more weight placed on current signals. All else equal, this suggests that executives in new industries might work harder, face greater scrutiny, and be dismissed with higher probabilities than executives in established industries. Likewise, if in one country, the business community is very tight (perhaps because most of its leaders attended the same few universities or institutions), then priors will be precise, executives will correspondingly feel less pressure to work hard, face less scrutiny, and enjoy more secure positions, at least relative to executives in a country with a less tight business community. Of course, if the work that executives do is myopic signal jamming, then firms in old industries or with leaders from tight business communities might have an advantage vis-á-vis those in new industries or with leaders from more open business communities.
