http://repub.eur.nl/res/concept/jel-D83/ Recent publications classified by JEL Code D83 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/39958/ 2013-05-08T00:00:00Z In this paper we propose the use of preferred outcome distributions as a new method to elicit individuals’ value and probability weighting functions in decisions under risk. Extant approaches for the elicitation of these two key ingredients of individuals’ risk attitude typically rely on a long, chained sequence of lottery choices. In contrast, preferred outcome distributions can be elicited through an intuitive graphical interface, and, as we show, the information contained in two preferred outcome distributions is sufficient to identify non-parametrically both the value function and the probability weighting function in rank-dependent utility models. To illustrate our method and its advantages, we run an incentive-compatible lab study in which participants use a simple graphical interface – the Distribution Builder (Goldstein et al. 2008) – to construct their preferred outcome distributions, subject to a budget constraint. Results show that estimates of the value function are in line with previous research but that probability weighting biases are diminished, thus favoring our proposed approach based on preferred outcome distributions. Donkers, A.C.D. Lourenço, C.J.S. Dellaert, B.G.C. Goldstein, D.G. http://repub.eur.nl/res/pub/38218/ 2012-10-01T00:00:00Z The supposed irrelevance of historical costs for rational decision making has been the subject of much interest in the economic literature. In this paper we explore whether individual decision making under risk is affected by the cost of the supplied information. Outside of the lab, it is difficult to disentangle the effect of the cost of information itself from the effect of self-selection by individuals who tend to gain the most from this information. We thus create an environment in the lab where subjects are offered additional, useful and identical information on the state of the world across treatments. By varying the cost of information we can distinguish between selection and sunk cost effects. We find a systematic effect of sunk costs on the manner in which subjects update their beliefs on the state of the world. Subjects over-weigh costly information relatively to free information, which results in a 'push' of beliefs towards the extremes. This shift does not necessarily lead to behavior more attuned with Bayesian updating. Robalo, P. Sayag, R.S. http://repub.eur.nl/res/pub/32104/ 2012-04-10T00:00:00Z In many organizations, reward decisions depend on subjective performance evaluations. However, evaluating an employee's performance is often difficult. In this paper, we develop a model in which the employee is uncertain about his own performance and about the manager's ability to assess him. The manager gives an employee a performance appraisal with a view of affecting the employee's self perception, and the employee's perception of the manager's ability to assess performance. We examine how performance appraisals affect the employee's future performance. The predictions of our model are consistent with various empirical findings. These comprise (i) the observation that managers tend to give positive appraisals, (ii) the finding that on average positive appraisals motivate more than negative appraisals, and (iii) the observation that the effects of appraisals depend on the employee's perception of the manager's ability to assess performance accurately. Kamphorst, J.J.A. Swank, O.H. http://repub.eur.nl/res/pub/32658/ 2012-03-01T00:00:00Z Deciding how much to save for retirement is a difficult task that includes many uncertainties. In this paper, we use data from a representative Dutch household panel to study the impact of uncertainty regarding one's savings adequacy on retirement savings contributions and information search processes. We combine ideas from the literature in psychology and economics that provide opposing predictions regarding the impact of uncertainty on retirement savings contributions. Our results indicate that the effect of uncertainty is moderated by two factors: an individual's perceived adequacy of current savings and that individual's financial constraints. In particular, we find that uncertainty increases retirement contributions for those who believe that they save adequately; however, it hinders retirement contributions for those who believe that they save inadequately. This effect of uncertainty is further moderated by the availability of financial means: a reduction in uncertainty results in greater contributions to savings only when financial constraints are absent. We also find that uncertainty has both indirect and direct effects on savings information search. In particular, uncertainty indirectly affects savings information search because it impacts individuals' intentions to save, which consequently forces individuals to engage in purchase-oriented information search; however, uncertainty also has a direct effect because individuals engage in ongoing information search processes to directly reduce uncertainty. The implications of these findings are discussed. Schie, R.J.G. van Donkers, A.C.D. Dellaert, B.G.C. http://repub.eur.nl/res/pub/22552/ 2011-02-01T00:00:00Z Using simple game-theoretical models, this paper studies the role of pre-determined rules for HRM policies. We consider a model in which HRM decisions affect employees' self-images and thereby their motivation. We show that in the absence of written rules, managers are too reluctant (1) to differentiate between employees on the basis of their abilities, and (2) to terminate employment of employees on probation. Generally, organizations benefit from committing to strict rules for various HRM practices. Dominguez Martinez, S. Swank, O.H. http://repub.eur.nl/res/pub/18544/ 2010-03-01T00:00:00Z We study two aspects of globalization. It allows a decision-maker to go beyond his own local experience and to learn from other decision-makers in addressing common problems. This improves the identification and diffusion of best practices. It also provides extra information to `markets' that evaluate decision-makers: comparisons become possible. We identify conditions under which the globalization of markets helps or hurts (i) the communication among decision-makers about their own experience and (ii) the quality of the decision that is taken next. An important mediating factor is whether decision-making is centralized or decentralized. Swank, O.H. Visser, B. http://repub.eur.nl/res/pub/22120/ 2010-03-01T00:00:00Z A physician performs two tasks: making diagnoses and determining treatments. To reduce medical error, junior doctors are supposed to consult their supervisors when they face uncommon circumstances. However, recent research shows that junior doctors are reluctant to do so. This paper presents a model that explains (i) which junior doctors shy away from consulting; (ii) when junior doctors are reluctant; (iii) the importance of protocols in the medical sector; and (iv) when consulting is a sign of strength or a sign of weakness. Furthermore, I show that encouraging junior doctors to consult by investigating mishaps leads to another distortion: they will give too much weight to own assessments. Swank, O.H. http://repub.eur.nl/res/pub/17092/ 2009-10-12T00:00:00Z This paper is the first to examine the effect of minimum price guarantees in a sequential search model. Minimum price guarantees are not advertised and only known to consumers when they come to the shop. We show that in such an environment, minimum price guarantees increase the value of buying the good and therefore increase consumers’ reservation prices. This increase is so large that even after accounting for the fact that some consumers will buy at lower prices, firms profits are larger under minimum price guarantees than without it. We also show that an equilibrium where all firms offer minimum price guarantees does not exist because of a free-riding problem. Minimum price guarantees can only be an equilibrium phenomenon in an equilibrium where firms randomize their decision to offer these guarantees. Janssen, M.C.W. Parakhonyak, A. http://repub.eur.nl/res/pub/22266/ 2009-07-01T00:00:00Z We develop a simple model that describes individuals’ self-assessments of their abilities. We assume that individuals learn about their abilities from appraisals of others and experience. Our model predicts that if communication is imperfect, then (i) appraisals of others tend to be too positive and (ii) overconfidence leading to too much activism is more likely than underconfidence leading to too much passivity. The predictions of our model are consistent with findings in the social psychological literature. Swank, O.H. Dominguez Martinez, S. http://repub.eur.nl/res/pub/16301/ 2009-05-12T00:00:00Z A physician performs two tasks: making diagnoses and determining treatments. To reduce medical error, residents are supposed to consult their supervisors when they face uncommon circumstances. However, recent research shows that residents are reluctant to do so. This paper presents a model that explains (i) which residents shy away from consulting; (ii) when residents are reluctant; (iii) the importance of protocols in the medical sector; and (iv) when consulting is a sign of strength or a sign of weakness. Furthermore, I show that encouraging residents to consult by investigating mishaps leads to another distortion: residents will give too much weight to own assessments. Swank, O.H. http://repub.eur.nl/res/pub/15913/ 2009-05-11T00:00:00Z This study examines the relationship between knowledge management (KM) (in terms of external acquisition and internal sharing) and innovation behavior. The concept of absorptive capacity and assumptions from the dynamic capabilities view underlie the proposed framework and hypotheses. The framework is empirically tested using a random sample of 649 Dutch small to medium sized enterprises (SMEs). Our empricial results indicate that external acquisition practices play a key role in fostering SMEs’ innovativeness while internal sharing practices do not appear to have a significant influence. External acquisition activity enhances a firm’s awareness of available knowledge opportunities. Firms which actively acquire external knowledge (regardless of the type of knowledge) may build a greater competitive dynamic capability to sense and seize business opportunities which in turn may lead to new or improved products or processes. We suggest that owners/entrepreneurs of SMEs and their firms will benefit in the long term if they strategically manage knowledge, especially using external acquisition practices. Zhou, H. Uhlaner, L.M. http://repub.eur.nl/res/pub/15914/ 2009-05-11T00:00:00Z In this study, we examine the prevalence of different KM practices and the organizational determinants of KM among SMEs by conducting a quantitative study of empirical data from nearly 500 Dutch SMEs. Our empirical results show that knowledge is managed in a people-based approach in SMEs. SMEs are most likely to acquire knowledge by staying in touch with professionals and experts outside the company and they incline to share knowledge and experience by talking to each other. Furthermore, KM is dependent on other organizational resources and processes. Organizational learning and competitive strategy with a formality approach are the positive determinants of KM while family orientation is a negative determinant of it. One of the challenges in the current study was to clearly distinguish, on an empirical basis, the previously defined concepts of knowledge management practices and organizational learning. Although in theory, they are distinct, the results of this study lead us to conclude that they may overlap in practice. In the conclusion, we recommend a learning-oriented knowledge management model for SMEs which combines aspects of the two literatures. Zhou, H. Uhlaner, L.M. http://repub.eur.nl/res/pub/16299/ 2009-05-01T00:00:00Z We propose a new approach to the modelling of the term structure of interest rates. We consider the general dynamic factor model and show how to impose smoothness restrictions on the factor loadings. We further present a statistical procedure based on Wald tests that can be used to find a suitable set of such restrictions. We present these developments in the context of term structure models, but they are also applicable in other settings. We perform an empirical study using a data set of unsmoothed Fama-Bliss zero yields for US treasuries of different maturities. The general dynamic factor model with and without smooth loadings is considered in this study together with models that are associated with Nelson-Siegel and arbitrage-free frameworks. These existing models can be regarded as special cases of the dynamic factor model with restrictions on the model parameters. For all model candidates, we consider both stationary and nonstationary autoregressive processes (with different numbers of lags) for the latent factors. Finally, we perform statistical hypothesis tests to verify whether the restrictions imposed by the models are supported by the data. Our main conclusion is that smoothness restrictions can be imposed on the loadings of dynamic factor models for the term structure of US interest rates but that the restrictions implied by a number of popular term structure models are rejected. Jungbacker, B. Koopman, S.J. Wel, M. van der http://repub.eur.nl/res/pub/16417/ 2009-02-01T00:00:00Z An important role of informative advertising is to inform consumers of the simple fact that the shop that advertises sells a particular product. This information may help consumers to save on their search activities: instead of wandering around, a consumer can simply visit the shop that has advertised, knowing that there he can find the commodity he is looking for. The implications of this simple fact have not been studied before. Using game theoretic reasoning in a model that combines consumer search and firms' advertising we show that firms may find it optimal to advertise prices that are higher than nonadvertised prices. The important mechanism underlying this result is that advertising lowers the expected search cost for consumers. Through this analysis we provide a new insight into the role of informative advertising. Janssen, M.C.W. Non, M.C. http://repub.eur.nl/res/pub/14080/ 2008-12-04T00:00:00Z The communication of inspiring visions is arguably the sine qua non of change-oriented leadership. Visions are images of the future. Vision communication refers to the expression of a vision with the aim of convincing others (usually followers) that the vision is valid. Despite the fact that the merits of vision communication are widely acknowledged, research in vision communication is scarce and unable to explain comprehensively how and when leaders are able to inspire followers through the communication of visions. In this dissertation I set out to answer the question ‘How can vision communication affect follower (intrinsic) motivation and subsequent behavior?’ The key insight of this dissertation is that, if vision communication stimulates followers to create future images of themselves based on a vision (so called possible selves), it may subsequently cause them to be more intrinsically motivated to make this vision reality. In this dissertation I develop a theoretical framework for the role of possible selves of followers in visionary leadership. Furthermore, I present the results of several experimental studies that investigate hypotheses derived from this framework. Ultimately, I identify various ways in which leader vision communication might positively influence follower motivation. Stam, D.A. http://repub.eur.nl/res/pub/12871/ 2008-07-15T00:00:00Z Online markets have dramatically decreased costs of search and communication for buyers. By contrast, costs of evaluating purchasing alternatives have become critical due to an overwhelming range of available options. When high, evaluation costs can offset potential gains from transactions and cause inefficiencies, e.g. by forcing buyers to abandon transactions without allocating contracts. While most previous studies treat evaluation costs as an exoge-nous factor, this study considers them endogenous. We identify several tactics (search, request for proposal preparation, budget announcement, bid filtering, and negotiation) that buyers at online markets can use to reduce their evaluation costs and hence influence project allocation. Using data from nearly 10 thousand transactions at a leading online marketplace for IT services, we show that buyers who use these tactics are more likely to allocate their project to a winner than buyers not using these tactics. Buyer experience also has a positive effect on allocation and, in addition, moderates the effectiveness of some of the tactics. As experience grows, budget announcement be-comes more effective in coping with evaluation costs and increases the likelihood of allocation, while the effectiveness of request for proposal preparation decreases. Together, these results shed more light on the buyer side of online reverse auctions, which leads to guidelines for improving the efficiency of online marketplaces. Radkevitch, U.L. Heck, H.W.G.M. van Koppius, O.R. http://repub.eur.nl/res/pub/14028/ 2008-07-11T00:00:00Z We consider an oligopolistic market where firms compete in price and quality and where consumers are heterogeneous in knowledge: some consumers know both the prices and quality of the products offered, some know only the prices and some know neither. We show that two types of signalling equilibria are possible. Both are characterised by dispersion and Pareto-inefficiency of the price/quality offers. But, better price/quality combinations are signalled with lower prices in one type and with higher prices in the other type. Dubovik, A. Janssen, M.C.W. http://repub.eur.nl/res/pub/13670/ 2008-05-08T00:00:00Z This study analyses 1400 research projects of the top 20 R&D-spending pharmaceuticals to identify the determinants of successful research projects. We provide clear evidence that externally sourced projects and projects involving biotechnologies perform better than internal projects and chemical projects, respectively. Controlling for these effects, we find that big pharma should either build a critical mass of disease area knowledge or diversify projects over different DA’s in order to obtain higher success probabilities. Projects in which a firm has built a critical mass of disease knowledge (through at least 10 projects per DA) are significantly more likely to reach clinical testing. Moreover, within large disease areas, the success probabilities of internal projects increases when a few (less than 20%) externally sourced projects are involved. We interpret this finding as knowledge spillovers from external to internal projects, as the limited number of external projects enables the same people to be involved in both external and internal research projects and apply externally generated knowledge internally. Phlippen, S.M.W. Vermeersch, A. http://repub.eur.nl/res/pub/10896/ 2008-01-11T00:00:00Z This paper builds a consumer search model where the cost of going back to stores already searched is explicitly taken into account. We show that the optimal search rule under costly recall is very different from the optimal search rule under perfect recall. Under costly recall, the optimal search behaviour is nonstationary and, moreover, the reservation price is not independent of previously sampled prices. We fully characterize the optimal search rule under costly recall when a finite number of firms draws price quotes from a given distribution. Janssen, M.C.W. Parakhonyak, A. http://repub.eur.nl/res/pub/11671/ 2008-01-01T00:00:00Z We consider a duopoly in a homogenous goods market where part of the consumers are ex ante uninformed about prices. Information can come through two different channels: advertising and sequential consumer search. We arrive at the following results. First, there is no monotone relationship between prices and the degree of advertising. Second, advertising and search are “substitutes” for a large range of parameters. Third, when the cost of either search or advertising vanishes, the competitive outcome arises. Finally, both expected advertised and non-advertised prices are non-monotonic in search cost. One of the implications is that firms actually may benefit from consumers having low (rather than high) search costs. Janssen, M.C.W. Non, M.C.