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We present a lab-field experiment designed to systematically assess the external validity of social preferences elicited in a variety of experimental games. We do this by comparing behavior in the different games with several behaviors elicited in the field and with self-reported behaviors exhibited in the past, using the same sample of participants. Our results show that the experimental social preference games do a poor job explaining both social behaviors in the field and social behaviors from the past. We also include a systematic review and meta-analysis of previous literature on the external validity of social preference games. History: Accepted by John List, behavioral economics. Funding: M. M. Galizzi gratefully acknowledges funding from the Economic and Social Research Council [Future Research Leader Fellowship ES/K001965/1], D. Navarro-Martinez acknowledges support from the Spanish Ministry of Economy and Competitiveness [MINECO-PSI2013-41909-P]. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2017.2908. Keywords: field behavior * external validity * experimental games * social preferences, 1. Introduction The last few decades have seen a strong surge of interest in what is now widely known in economics as 'social preferences.' While the study of social behaviors [...]

This study provides novel evidence that expert economic agents' work-related activities are systematically influenced by the time of day. We use archival data derived from time-stamped quarterly earnings conference calls together with linguistic algorithms to measure and track the moods of executives and analysts at different times of the day. The evidence indicates that the tone of conference call discussions deteriorates markedly over the course of the trading day, with both analysts' and executives' moods becoming more negative as the day wears on. Capital market pricing tests reveal that the time-of-day-induced negative tone leads to temporary stock mispricings. Our findings are relevant because the diurnal variations in behavior documented in the context of quarterly earnings calls are likely to extend across other important corporate communication, decision making, and performance situations, leading to potentially significant economic consequences. History: Accepted by Shiva Rajgopal, accounting. Keywords: conference calls * textual analysis * management communication * investor relations * circadian rhythms * diurnal variations * abnormal returns * behavioral economics, 1. Introduction Most of us sense that our moods, physical energy levels, and cognitive functioning skills vary over the course of the day, and a substantial body of psychological and [...]

This paper investigates the effect of work interruption on workers' subsequent productivity. We employ a data set of individual productivity and machine conditions, in which each worker faces the chance, on a daily basis, that her machine will break down randomly. Our analysis finds that compared to a workday with smooth production, experiencing a machine breakdown is associated with a 3.3 percentage point decline in the worker's productivity the following day. We discuss possible explanations for the observed effect, including negative emotions, increased cautiousness in operating the machine, and proficiency loss. Our findings shed light on the importance of understanding and managing interruptions in the workplace, and contribute to a growing literature on the determinants of productivity at the micro level. History: Accepted by John List, behavioral economics. Funding: X. Cai acknowledges financial support from the Fundamental Research Funds for the Central University [Grant 0140ZK1110]. S. Zhong acknowledges financial support from the Singapore Ministry of Education Academic Research Fund Tier 1. Supplemental Material: Data and the online appendix are available at https://doi.org/10.1287/ mnsc.2017.2792. Keywords: productivity * labor supply * work interruption * reference dependence * emotion, 1. Introduction Interruptions are common in the workplace and costly to individuals, firms, and organizations. From equipment breakdowns to unscheduled meetings and communication requests, unplanned breaks from a smooth and [...]

Previous research has documented a behavioral distinction between 'social risk,' or risk caused by human factors, and natural risk. In particular, people tend to demand a premium on the probability of a favorable outcome in order to expose themselves to a social source of risk rather than a natural source of risk. Several explanations for what drives this social risk premium have been offered--most prominently, (i) an aversion to a counterparty's potentially malign intentions and (ii) a more general aversion to ceding control to someone with conflicting interests. We propose that a fundamental determinant of the social risk premium may relate to a counterparty's capacity to engage in intentional action. We employ a between-subjects experimental design in which we manipulate subjects' capacity for intentional action. Our design allows us to identify the component of the social risk premium related to an aversion to betrayal, independent of any aversion to ceding control. Furthermore, our results show that intentions are a crucial determinant of the social risk premium. We identify factors that eliminate, and may even change the sign of, the social risk premium. Our results contribute to our understanding of the factors that influence the perception of social risk and have implications for optimal contract design in a wide variety of situations involving social risk. History: Accepted by Uri Gneezy, behavioral economics. Funding: J. B. Miller gratefully acknowledges support from a 2011 grant awarded by the Einaudi Institute for Economics and Finance (EIEF). Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2016.2694. Keywords: social risk * social perception * intention * betrayal aversion * trust * control, 1. Introduction The canonical framework for describing decision making under risk is that of a lottery--that is, a probability distribution over consequences. However, a growing body of research argues that [...]

We report an experiment to study the effect of defaults on charitable giving. In three different treatments, participants face varying default levels of donation. In three other treatments that are paired with the first three, they receive the same defaults, but are informed that defaults are thought to have an effect on their donation decisions. The emotional state of all individuals is monitored throughout the sessions using Facereading software, and some participants are required to report their emotional state after the donation decision. We find that the level at which a default is set has no effect on donations, and informing individuals of the possible impact of defaults also has no effect. Individuals who are happier and in a more positive overall emotional state donate more. Donors experience a negative change in the valence of their emotional state subsequent to donating, when valence is measured with Facereading software. This contrasts with the self-report data, in which donating correlates with a more positive reported subsequent emotional state. (JEL C91), I. INTRODUCTION Charitable giving, in the form of money, time, or in kind, constitutes a nonnegligible fraction of the economy in many countries. Nevertheless, there does appear to be scope [...]

We provide evidence from field experiments with three different banks that reminder messages increase commitment attainment for clients who recently opened commitment savings accounts. Messages that mention both savings goals and financial incentives are particularly effective, whereas other content variations such as gain versus loss framing do not have significantly different effects. Nor do we find evidence that receiving additional late reminders has an additive effect. These empirical results do not map neatly into existing models, so we provide a simple model where limited attention to exceptional expenses can generate undersaving that is in turn mitigated by reminders. Data, as supplemental material, are available at https://doi.org/10.1287/mnsc.2015.2296. Keywords: economics: microeconomic behavior; behavior and behavioral decision making; finance History: Received November 25, 2013; accepted December 6, 2015, by Teck-Hua Ho, behavioral economics. Published online in Articles in Advance January 19, 2016., 1. Introduction Consumption, savings, and borrowing behavior is sometimes difficult to reconcile with traditional models of intertemporal choice. Calibrations of U.S. data suggest that extremely high short-term discount rates are [...]

We examine a prevalent form of client--agent interaction through a feedback-giving game. In this game, a client undertakes a nontrivial task and is compensated based on her task performance, which is only made known to her when the client--agent interaction ends. Meanwhile, her performance is disclosed to an agent, who must then give the client feedback on her performance. Upon receiving the feedback, the client reports her happiness level, which in turn determines the agent's payoff. In eight studies involving 928 subjects, we vary the way the agent's cash earnings depend on the client's reported happiness. When we make the agent's earnings proportional to the client's reported happiness, the agent inflates his feedback, and the client reports a higher level of happiness (than that reported in a control condition where the agent always provides honest feedback). We show that neither the agent nor the client behaves altruistically in their reporting. The client reports being happier because she overestimates her performance and mistakenly believes that the agent's feedback is genuine. The agent stops inflating his feedback when doing so no longer benefits him. Finally, our main findings are shown to be robust with respect to several factors, including making the agent's feedback consequential in affecting the client's payoff. In summary, we show that the agent behaves opportunistically, and the client's overconfidence of her own performance is what makes this strategy successful. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1846. Keywords: opportunism; altruism; overconfidence; feedback giving game; client--agent interaction; behavioral economics History: Received September 20, 2012; accepted August 29, 2013, by Uri Gneezy, behavioral economics. Published online in Articles in Advance February 12, 2014., 1. Introduction Giving and receiving feedback are central to social interaction. People regularly give and receive feedback. For example, as professors, we give feedback to our students about their class [...]

Price delegation to the salesforce is a practice widely adopted by firms. This paper examines the relationship between price delegation and managerial profits using a laboratory economics experiment. A novel feature of our experiment is that we study how varying the relationship organization of the sales manager and salesperson to allow for (1) requests by the salesperson for the manager to choose price delegation, and for (2) the manager to award a small bonus after observing the salesperson's decisions, can affect behavior. The results show that, contrary to the theoretical prediction, managers choose price delegation frequently and salespeople respond reciprocally, leading to higher manager profits under price delegation. Moreover, this behavior increases when requests and bonuses are allowed. We show that a behavioral economics model that incorporates positive reciprocity can explain these results well. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1778. Keywords: sales management; experimental economics; behavioral economics; price delegation History: Received April 17, 2012; accepted May 21, 2013, by Pradeep Chintagunta, marketing. Published online in Articles in Advance October 28, 2013., 1. Introduction In many industries, sales managers can let salespeople determine the prices of the products they sell to customers. This practice is known as price delegation. (1) In an [...]

Most studies of Bayesian updating use experimental data. This article uses a non-experimental data source--the voter ballots of the Associated Press college football poll, a weekly subjective ranking of the top 25 teams--to test Bayes' rule as a descriptive model. I find that voters sometimes underreact to new information, sometimes overreact, and at other times their behavior is consistent with estimated Bayesian updating. A unifying explanation for the disparate results is that voters are more responsive to information that is more salient (i.e., noticeable). In particular, voters respond in a 'more Bayesian' way to losses and wins over ranked teams, as compared to wins over unranked teams, and voters seem unaware of subtle variation in the precision of priors. (JEL D80, D83, D84), I. INTRODUCTION Most studies of Bayesian updating use experimental data. (1) Although this research has led to many insights into human behavior, it is inherently subject to a few criticisms. [...]

Almost all jobs require a combination of cognitive effort and labor effort. This paper focuses on the effect that competitive incentive schemes have on the chosen combination of these two types of efforts. We use an experimental approach to show that competitive incentives may induce agents to work harder but not necessarily smarter. This effect was stronger for women. Key words: behavioral economics; individual decision making; lab experiment; competitive incentives; work effort History: Received December 6, 2011; accepted May 14, 2012, by John List, behavioral economics. Published online in Articles in Advance September 21, 2012., 1. Introduction Almost all jobs require a combination of cognitive effort and labor effort. Conducting research and development, running a company, building a house, teaching a class, or working on [...]

Routines are repetitive patterns of activity within a group, action patterns that help the group to solve problems and organize its way of functioning. Routines address issues of problem solving [...]

This paper examines conceptual issues and reviews empirical results bearing on the relationship between research approaches emphasizing organizational capabilities and those based in transaction cost economics (TCE)--or in organizational economics [...]

The 2008 global economic crisis demonstrates the validity of behavioral economics, in which human beings are motivated by unconscious biases and therefore do not always make rational decisions. The article stresses the importance of incorporating this perspective into corporate business strategy.

Behavioral economist Dan Ariely says that companies should always compare their product to one that customers already know for them to be able to gauge its value. Ariely also says that managers should consider their pricing strategy very carefully when they want their products to be perceived in a different way.

A look at case studies of multinational firms that tried to market clean water, eyeglasses and nutritious yoghurt to the poor is presented. The ventures were unsuccessful even if the products are useful for the poor. This shows that firms need to return to the basic principles and rules of economic and business in creating strategies for marketing socially useful goods to the poor.