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This paper analyzes a model of fund managers' reputation concerns. It explains why "Nickel strategies" (strategies that earn small positive returns most of the time but occasionally lead to dramatic losses) are more popular among managers than the opposite "Black Swan strategies," (strategies that generate small losses most of the time but occasionally lead to large profits). A novel insight from the model is the fragile nature of the economy with reputation concerns: the interaction between managers' reputation concern and investors' perception of managers' strategy choices may lead to multiple self-fulfilling equilibria.
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