Manag. Sci.Pub Date : 2022-04-06DOI: 10.1287/mnsc.2022.4411
Joshua Lewis, D. Feiler, Ron Adner
{"title":"The Worst-First Heuristic: How Decision Makers Manage Conjunctive Risk","authors":"Joshua Lewis, D. Feiler, Ron Adner","doi":"10.1287/mnsc.2022.4411","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4411","url":null,"abstract":"Many important managerial outcomes hinge on the co-occurrence of multiple uncertain events, a situation termed conjunctive risk. Whereas past literature has addressed the psychology of choosing to enter situations with conjunctive risk, this article elucidates a novel way in which the psychology of managing conjunctive risk is importantly distinct. We examine a case in which there are two independent events, one is currently less likely than the other, both are required for overall success, and the decision maker must evaluate opportunities to increase the chance of the less-likely or more-likely requirement. We introduce the hypothesis of a worst-first heuristic. Decision makers intuitively evaluate improvements in conjunctive risk according to their impact on the biggest barrier to success, the least likely of the required events. We find evidence for such a worst-first heuristic across nine experiments (n = 3,653, including samples from the United States and United Kingdom in Studies 1–5 and Studies S1–S3 in the online supplement, as well as a sample of managers in Study 6). Participants invest more to improve chances of less-likely requirements than more-likely requirements, even when the latter improvements have at least as much impact on the aggregate chance of success. Moreover, we find that decision makers exhibit this behavior particularly when managing conjunctive risk, as doing so makes them attend to which threat is the worst. Conversely, they do not appear to exhibit the behavior when making formally equivalent decisions about choosing between conjunctive risks. This bias toward underinvesting in stronger-links holds important implications for decision making in contexts subject to conjunctive risk—both managerial and societal. This paper was accepted by Yuval Rottenstreich, behavioral economics and decision analysis.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"4 1","pages":"1575-1596"},"PeriodicalIF":0.0,"publicationDate":"2022-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75247058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-04-05DOI: 10.1287/mnsc.2022.4409
Samir Mamadehussene, Francesco Sguera
{"title":"On the Reliability of the BDM Mechanism","authors":"Samir Mamadehussene, Francesco Sguera","doi":"10.1287/mnsc.2022.4409","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4409","url":null,"abstract":"The Becker-DeGroot-Marschak (BDM) mechanism is frequently used in experimental research to measure willingness-to-pay (WTP). The mechanism is very appealing given its incentive compatibility property. However, a growing body of experimental evidence finds that WTP is sensitive to the underlying price distribution of the BDM mechanism. The literature suggests that these findings can be rationalized only if subjects have context-dependent preferences. Under context-dependent preferences, the use of the BDM mechanism momentarily changes subjects’ preferences; subjects do not have incentives to report their intrinsic valuation, which is what the BDM attempts to measure, but instead they report the amount they are willing to pay after their preferences have momentarily changed. This lack of incentive compatibility would raise serious concerns about the validity of the BDM as an elicitation procedure; indeed, virtually all studies that use the BDM mechanism choose that elicitation procedure precisely for its incentive compatibility property. In this paper, we propose that an assumption of context dependence is not necessary to rationalize the aforementioned experimental findings. We provide an alternative plausible theory and experimental evidence to support it. Our theory relies on the premise that subjects need to exert effort to learn their preferences. We find that the price distribution of the BDM mechanism influences the subject’s incentives to exert effort. The results presented here are particularly appealing to the experimental research: our theory is consistent with the experimental findings that WTP is sensitive to the price distribution of the BDM mechanism while preserving the incentive compatibility property. This paper was accepted by Duncan Simester, marketing.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":" 29","pages":"1166-1179"},"PeriodicalIF":0.0,"publicationDate":"2022-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91414870","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-04-05DOI: 10.1287/mnsc.2020.3834
Liya Chu, Xue-zhong He, Kai Li, Jun Tu
{"title":"Investor Sentiment and Paradigm Shifts in Equity Return Forecasting","authors":"Liya Chu, Xue-zhong He, Kai Li, Jun Tu","doi":"10.1287/mnsc.2020.3834","DOIUrl":"https://doi.org/10.1287/mnsc.2020.3834","url":null,"abstract":"This study investigates the impact of investor sentiment on excess equity return forecasting. A high (low) investor sentiment may weaken the connection between fundamental economic (behavioral-based nonfundamental) predictors and market returns. We find that although fundamental variables can be strong predictors when sentiment is low, they tend to lose their predictive power when investor sentiment is high. Nonfundamental predictors perform well during high-sentiment periods while their predictive ability deteriorates when investor sentiment is low. These paradigm shifts in equity return forecasting provide a key to understanding and resolving the lack of predictive power for both fundamental and nonfundamental variables debated in recent studies. This paper was accepted by David Simchi-Levi, finance.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"187 1","pages":"4301-4325"},"PeriodicalIF":0.0,"publicationDate":"2022-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80679234","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-04-05DOI: 10.1287/mnsc.2022.4301
Rodrigo Belo, Ting Li
{"title":"Social Referral Programs for Freemium Platforms","authors":"Rodrigo Belo, Ting Li","doi":"10.1287/mnsc.2022.4301","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4301","url":null,"abstract":"We examine how freemium platforms can design social referral programs to encourage growth and engagement without sacrificing revenue. On the one hand, social referral programs generate new referrals from users who would not have paid for the premium features. On the other hand, they also attract new referrals from users who would have paid but prefer to invite others, resulting in more referrals but fewer paying users. We use data from a large-scale randomized field experiment in an online dating platform to assess the effects of adding referrals programs to freemium platforms and changing the referral requirements on users’ behavior, namely, on their decisions to invite, pay, and engage with the platform. We find that introducing referral programs in freemium platforms can significantly contribute to increasing the number of referrals at the expense of revenue. Platforms can avoid the loss in revenue by reserving some premium features exclusively for paying users. We also find that increasing referral requirements in social referral programs can work as a double-edged sword. Increasing the referral threshold results in more referrals and higher total revenue. Yet these benefits appear to come at a cost. Users become less engaged, decreasing the value of the platform for all users. We explore two mechanisms that help to explain the differences in users’ social engagement. Finally, and contrary to prior findings, we find that the quality of the referrals is not affected by the referral requirements. We discuss the theoretical and practical implications of our research. This paper was accepted by Chris Forman, information systems.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"34 7 1","pages":"8933-8962"},"PeriodicalIF":0.0,"publicationDate":"2022-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89496841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-04-04DOI: 10.1287/mnsc.2022.4397
Vincent Laferrière, David Staubli, C. Thöni
{"title":"Explaining Excess Entry in Winner-Take-All Markets","authors":"Vincent Laferrière, David Staubli, C. Thöni","doi":"10.1287/mnsc.2022.4397","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4397","url":null,"abstract":"We report experimental data from standard market entry games and winner-take-all games. At odds with traditional decision-making models with risk aversion, the winner-take-all condition results in substantially more entry than the expected-payoff-equivalent market entry game. We explore three candidate explanations for excess entry: blind spot, illusion of control, and joy of winning, none of which receive empirical support. We provide a novel theoretical explanation for excess entry based on cumulative prospect theory and test it empirically. Our results suggest that excess entry into highly competitive environments is not caused by a genuine preference for competing, but is instead driven by probability weighting. Market entrants overweight the small probabilities associated with the high payoff outcomes in winner-take-all markets, while they underweight probable failures. This paper was accepted by Yan Chen, behavioral economics and decision analysis.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"16 1","pages":"1050-1069"},"PeriodicalIF":0.0,"publicationDate":"2022-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84408427","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-04-04DOI: 10.1287/mnsc.2022.4380
Mohamed Mostagir, James Siderius
{"title":"Social Inequality and the Spread of Misinformation","authors":"Mohamed Mostagir, James Siderius","doi":"10.1287/mnsc.2022.4380","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4380","url":null,"abstract":"We study the spread of misinformation in a social network characterized by unequal access to learning resources. Agents use social learning to uncover an unknown state of the world, and a principal strategically injects misinformation into the network to distort this learning process. A subset of agents throughout the network is endowed with knowledge of the true state. This gives rise to a natural definition of inequality: privileged communities have unrestricted access to these agents, whereas marginalized communities do not. We show that the role that this inequality plays in the spread of misinformation is highly complex. For instance, communities who hoard resources and deny them to the larger population can end up exposing themselves to more misinformation. Conversely, although more inequality generally leads to worse outcomes, the prevalence of misinformation in society is nonmonotone in the level of inequality. This implies that policies that decrease inequality without substantially reducing it can leave society more vulnerable to misinformation. This paper was accepted by Baris Ata, stochastic models and simulation.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"15 1","pages":"968-995"},"PeriodicalIF":0.0,"publicationDate":"2022-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75359923","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-04-01DOI: 10.1287/mnsc.2022.4376
Mohamed Mostagir, James Siderius
{"title":"Strategic Reviews","authors":"Mohamed Mostagir, James Siderius","doi":"10.1287/mnsc.2022.4376","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4376","url":null,"abstract":"The impact of product reviews on consumer purchasing behavior is empirically well documented. This can create perverse incentives for firms to offer reviewers side payments (“bribes”) in exchange for biased reviews for their products. The presence of bribes distorts the information in reviews and leads to detrimental effects on consumer utility. This paper builds a two-sided reputation model where a reviewer can inflate her reviews in exchange for bribes. If the reviewer accepts bribes and misrepresents her reviews, then she builds her reputation as an inaccurate reviewer and makes consumers less likely to follow her recommendations. This in turn makes firms no longer interested in offering her a bribe. Can the reviewer retain influence over consumers’ purchasing decisions while simultaneously accepting bribes and misrepresenting her reviews? We provide a characterization of the environments that allow this kind of manipulation and show that regulatory policies that aim to reduce bribes can lead to undesirable outcomes. Finally, we show that eliminating bribes from the market can increase the welfare of all market participants, even for those firms who would have otherwise bribed in exchange for more favorable reviews. This paper was accepted by Gabriel Weintraub, revenue management and market analytics.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"12 1","pages":"904-921"},"PeriodicalIF":0.0,"publicationDate":"2022-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79461633","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-03-31DOI: 10.1287/mnsc.2022.4398
Jason L. Brown, Patrick R. Martin, Geoffrey B. Sprinkle, Dan Way
{"title":"How Return on Investment and Residual Income Performance Measures and Risk Preferences Affect Risk-Taking","authors":"Jason L. Brown, Patrick R. Martin, Geoffrey B. Sprinkle, Dan Way","doi":"10.1287/mnsc.2022.4398","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4398","url":null,"abstract":"Return on investment (ROI) and residual income (RI) are two important accounting measures that are commonly used to evaluate managers’ performance, and evidence suggests that both ROI and RI can help motivate long-term investments. Research is limited, though, regarding whether ROI and RI differentially affect managers’ actions, and, more specifically, research has not examined the effects of ROI and RI on risk-taking. We conduct an experiment to examine the separate and interactive effects of individuals’ risk preferences and ROI and RI performance measures on risk-taking in capital investment decisions. We predict and find that the use of ROI as a performance measure leads to riskier choices, as compared with RI, and that this effect is concentrated in relatively more risk-averse individuals. We also provide process evidence that reveals some of the ways in which ROI and RI performance measures affect decision making. Collectively, our results contribute to literature examining the effects of accounting information and performance measures on managers’ risk-taking behaviors. This paper was accepted by Suraj Srinivasan, accounting.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"252 1","pages":"1301-1322"},"PeriodicalIF":0.0,"publicationDate":"2022-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78197977","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-03-31DOI: 10.1287/mnsc.2022.4389
S. Rathee, Kritika Narula, Arul Mishra, Hari Prasad Mishra
{"title":"Alphanumeric vs. Numeric Token Systems and the Healthcare Experience: Field Evidence from Healthcare Delivery in India","authors":"S. Rathee, Kritika Narula, Arul Mishra, Hari Prasad Mishra","doi":"10.1287/mnsc.2022.4389","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4389","url":null,"abstract":"Long wait times for patients are an important health policy issue in many countries, especially developing countries in which there is generally poorer health infrastructure, appointments are not very common, and the opportunity cost of competing life priorities is high. In this research, we examine via field experiments in health clinics in India whether providing numeric versus alphanumeric wait tokens can affect pain perceptions of patients and whether the type of tokens can also affect their wait-time perception and visit satisfaction. Our research provides initial evidence that alphanumeric tokens, in most cases, lead to lower pain perception, lower wait-time perception, and higher satisfaction levels with the healthcare system compared with numeric tokens. However, this is not always true; we also demonstrate boundary conditions when numeric tokens perform better and when the differences between tokens are attenuated. We conducted field experiments in three separate clinics and vary the type of tokens (numeric versus alphanumeric) used to test multiple token operationalizations in varied healthcare contexts. We explain our findings using the cognitive strategy of wait-time perception and discuss why this strategy is helpful for a developing country. This paper was accepted by Matthew Shum, marketing.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"129 1","pages":"1180-1221"},"PeriodicalIF":0.0,"publicationDate":"2022-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76407658","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Manag. Sci.Pub Date : 2022-03-31DOI: 10.1287/mnsc.2022.4357
Xue-Jia Jia, Rahul Menon
{"title":"Shareholder Short-Termism, Corporate Control and Voluntary Disclosure","authors":"Xue-Jia Jia, Rahul Menon","doi":"10.1287/mnsc.2022.4357","DOIUrl":"https://doi.org/10.1287/mnsc.2022.4357","url":null,"abstract":"This paper examines how a manager uses voluntary disclosure to influence corporate control by a short-term shareholder. Because a short-term shareholder intervenes excessively, the manager’s disclosure strategy is determined by the trade-off between excessive and insufficient intervention. In equilibrium, when shareholder short-termism is not too high, the manager discloses both good and bad news and withholds intermediate news. Alternatively, when shareholder short-termism is high, the manager only discloses good news and withholds bad news. In both equilibria, withholding information is value-enhancing for the nondisclosing firms. We also show that the likelihood of disclosure weakly decreases as the shareholder is more short-term-oriented. Moreover, nondisclosing firms are more likely to face shareholder intervention than disclosing firms. This paper was accepted by Brian Bushee, accounting.","PeriodicalId":18208,"journal":{"name":"Manag. Sci.","volume":"185 1","pages":"702-721"},"PeriodicalIF":0.0,"publicationDate":"2022-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81590410","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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