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Although product modularity is often advocated as a design strategy in the operations management literature, little is known about how consumers respond to modular products. In this research we undertake several experiments to explore consumer response to modularly upgradeable products in settings featuring technological change. We consider both the initial product choice (between a modularly upgradeable product and an integral one) and the subsequent upgrade decision (replacement of a module versus full product replacement). First, we show that consumers tend to discount the cost savings associated with modular upgrades excessively (insufficiently) when the time between the initial purchase and the upgrade is short (long). This suggests that modular upgradability as a product feature has higher profit potential for slowly rather than rapidly improving products. Second, we observe a preference reversal between the initial purchase and the point of upgrade: At the point of initial purchase, people foresee making a full product replacement in the future, yet, when faced with the actual upgrade decision, they are more likely to revert to modular upgrades. Finally, we discuss and test several pricing and product design strategies that the firm can use to respond to these cognitive biases. Key words: product architecture; modularity; product upgrades; product replacement; pricing; temporal construal; hyperbolic discounting; resource slack History: Received August 31, 2009; accepted December 6, 2011, by Kamalini Ramdas, entrepreneurship and innovation. Published online in Articles in Advance April 27, 2012., 1. Introduction and Background Accelerating technological progress, especially for consumer electronics products (e.g., cell phones, personal computers (PCs), cameras), presents consumers with the opportunity to use superior products. At the [...]

This study centers on the accuracy dimension of information quality and models the relationship between input accuracy and output accuracy in a popular class of applications. These applications consist of dichotomous decisions that are implemented through conjunction of selected criteria. In particular, the model provides the tools for quantifying the effect of errors in each decision input on the accuracy of a decision. Application of the model is illustrated through the example of a residential real estate database, where users 'preferences are captured by conjunctive decision rules. This example demonstrates how the new model can be utilized for quantifying the aggregate damage that errors in different database attributes inflict on property selection decisions. Finally, this paper reports on an initial empirical validation of the proposed model through a series of Monte Carlo simulations. Numerical estimates of the model that have been developed through this inquiry can be useful for data and information quality assessments or policy-making purposes. Mainly, they can be integrated into cost-benefit analyses that assess alternative data accuracy enhancements or process and system designs. Keywords: Cost-Benefit Analysis, Damage, Database Quality Management, Error Propagation, False Negative and False Positive Decisions, Information Accuracy, Satisficing Decisions, Multi-Criteria Decisions, Statistical-Mathematical Model, INTRODUCTION Nearly every organization is plagued by bad data, which result in higher costs, angry customers, compromised decisions, and greater difficulty for the organization to align departments. The overall cost [...]

When we make decisions, the benefits of an option often need to be weighed against accompanying costs. Little is known, however, about the neural systems underlying such cost-benefit computations. Using functional magnetic resonance imaging and choice modeling, we show that decision making based on cost-benefit comparison can be explained as a stochastic accumulation of cost-benefit difference. Model-driven functional MRI shows that ventro-medial and left dorsolateral prefrontal cortex compare costs and benefits by computing the difference between neural signatures of anticipated benefits and costs from the ventral striatum and amygdala, respectively. Moreover, changes in blood oxygen level dependent (BOLD) signal in the bilateral middle intraparietal sulcus reflect the accumulation of the difference signal from ventromedial prefrontal cortex. In sum, we show that a neurophysiological mechanism previously established for perceptual decision making, that is, the difference-based accumulation of evidence, is fundamental also in value-based decisions. The brain, thus, weighs costs against benefits by combining neural benefit and cost signals into a single, difference-based neural representation of net value, which is accumulated over time until the individual decides to accept or reject an option. cost--benefit integration | valuation | diffusion model | model-based functional MRI doi: 10.1073/pnas.0908104107

ABSTRACT Review of cost-effectiveness studies suggests that rapid assessment is more cost effective with regard to student achievement than comprehensive school reform (CSR), cross-age tutoring, computer-assisted instruction, a longer school [...]

Large infrastructure projects are deemed to lead to systematic risk underestimation, cost overruns, and benefit deficiency. Project promoters tend to make these projects appear highly beneficial and less costly only in paper apparently due to certain incentives. Suggestions on addressing these activities and trends in major infrastructure development are also presented.

Spinning reserve (SR) is one of the most important resources used by system operators to respond to unforeseen events such as generation outages and sudden load changes. While keeping large amounts of generation in reserve protects the power system against the generation deficits that might arise from different contingencies, and thus reduces the probability of having to resort to load shedding, this reserve provision is costly. Traditional unit commitment (UC) formulations use deterministic criteria, such as the capacity of the largest online generator to set the SR requirements. Other UC formulations adjust this requirement based on probabilistic criteria but require iterative processes or approximate calculations of the level of risk associated with the provision of reserve. This paper describes an offline method for setting the SR requirements based on the cost of its provision and the benefit derived from its availability. Index Terms--Expected energy not served (EENS), loss-of-load probability (LOLP), mixed integer programming (MIP), power generation dispatch, power generation scheduling, spinning reserve (SR), value of lost load (VOLL).

International commerce in live organisms presents a policy challenge for trade globalization; sales of live organisms create wealth, but some nonindigenous species cause harm. To reduce damage, some countries have implemented species screening to limit the introduction of damaging species. Adoption of new risk assessment (RA) technologies has been slowed, however, by concerns that RA accuracy remains insufficient to produce positive net economic benefits. This concern arises because only a small proportion of all introduced species escape, spread, and cause harm (i.e., become invasive), so a RA will exclude many noninvasive species (which provide a net economic benefit) for every invasive species correctly identified. Here, we develop a simple cost:benefit bioeconomic framework to quantify the net benefits from applying species prescreening. Because invasive species are rarely eradicated, and their damages must therefore be borne for long periods, we have projected the value of RA over a suitable range of policy time horizons (10-500 years). We apply the model to the Australian plant quarantine program and show that this RA program produces positive net economic benefits over the range of reasonable assumptions. Because we use low estimates of the financial damage caused by invasive species and high estimates of the value of species in the ornamental trade, our results underestimate the net benefit of the Australian plant quarantine program. In addition, because plants have relatively low rates of invasion, applying screening protocols to animals would likely demonstrate even greater benefits. invasion pathways | species screening | economics | quarantine | cost- benefit