Pedro Bordalo is Associate Professor of Finance at Saïd Business School, University of Oxford. His areas of expertise are behavioral finance and behavioral economics. His work has focused on the role of selective attention and memory in driving attitudes towards risk and in shaping the content of beliefs and expectations. This approach can explain key evidence that is puzzling from the perspective of standard rational models, including systematic instability of risk preferences, predictability of stock and bond market returns, predictable forecast errors and boom-bust cycles in credit markets.
Pedro’s research has been published in the Journal of Finance, Journal of Political Economy, the Quarterly Journal of Economics, and the Review of Economic Studies, among other leading journals. He has been invited by regulatory entities such as the Competition and Markets Authority (UK), the Federal Trade Commission (US), and the Financial Conduct Authority to present his work and discuss policy implications.
Prior to joining Oxford University, Pedro was a tenured Associate Professor in the Department of Economics at Royal Holloway, University of London. He holds an MSc in Theoretical Physics from the Ecole Normale Superieure and a PhD in Theoretical Physics from Universite Paris VI. He has been a post-doc and a visiting scholar in Economics at Harvard University and a visiting senior fellow in Finance at the London School of Economics.
Pedro’s research develops psychologically founded models of economic decision-making, and uses these models to shed light on several economic and financial phenomena. The key idea captured in these models is that, due to limited attention and memory, human decision-making is inherently comparative and context-dependent. This mechanism and its implications are explored in two broad areas:
Pedro has explored the role of salience in choice, a key psychological mechanism whereby decision-makers focus attention on, and overweigh, features that 'stand out' or are surprising in the choice context. This approach sheds light on the nature and systematic instability of risk attitudes and riskless choice, and provides a unified account of a wide range of evidence that is at the heart of behavioural economics.
Moreover, the idea that extreme or surprising payoffs receive disproportionate attention has strong implications for the working of markets, explaining several puzzles in asset pricing and shedding light on the dynamics of competition and innovation in financial markets.
Pedro has developed a model of beliefs in which individuals thinking about a group selectively recall (and overweight) the types that are representative, ie relatively more likely in that group than in a comparison group. This approach delivers several properties of stereotypes, such as exaggeration of group differences, which are ubiquitous in social judgment.
The approach also naturally extends to the formation of expectations. Such 'diagnostic expectations' overreact to news and display both extrapolation and neglect of risk. In a model of credit spreads, they generate excess volatility, predictable forecast errors and predictable forecast reversals, reproducing several features of credit cycles and macroeconomic volatility.
Pedro is regularly invited to present at conferences and seminars on behavioral finance and behavioral economics. Pedro has also presented his research at regulatory institutions such as the Competition and Markets Authority (UK), the Federal Trade Commission (US), NHS Improvement (UK) among others.
Pedro is a regular referee for leading economics and finance journals, including the American Economic Review, the Journal of Financial Economics, the Journal of Political Economy, the Quarterly Journal of Economics, and the Review of Economic Studies.
Pedro teaches the Behavioural Finance course in the MBA and Executive MBA programmes at Said Business School.
Saïd Business School
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