anticipating regret why fewer options may be better we study preferences over menus which can be represented as if the agent selects an alternative from a menu and experiences regret if her choice is ex post inferior since regret arises from comparisons between the alternative selected and the other available alternatives our axioms reflect the agent s desire to limit her options we prove that our representation is essentially unique we also introduce two measures of comparative regret attitudes and relate them to our representation finally we explore the formal connection between the present work and the literature on temptation

position auctions with consumer search this paper examines a model in which advertisers bid for sponsored link positions on a search engine the value advertisers derive from each position is endogenized as coming from sales to a population of consumers who make rational inferences about rm qualities and search optimally consumer search strategies equilibrium bidding and the welfare benets of position auctions are analyzed implications for reserve prices and a number of other auction design questions are discussed

off the cliff and back credit conditions and international trade during the global financial crisis abstract we study the collapse of international trade flows during the global financial crisis using detailed data on monthly us imports we show that credit conditions were an important channel through which the crisis affected trade volumes by exploiting the variation in the cost of capital across countries and over time as well as the variation in financial vulnerability across sectors countries with higher interbank rates and thus tighter credit markets exported less to the us during the peak of the crisis this effect was especially pronounced in sectors that require extensive external financing have limited access to trade credit or have few collateralizable assets exports of financially vulnerable industries were thus more sensitive to the cost of external capital than exports of less vulnerable industries and this sensitivity rose during the financial crisis the quantitative implications of our estimates for trade volumes highlight the large real effects of financial crises and the potential gains from policy intervention

does corporate social responsibility matter in asian emerging markets this study addresses the question whether corporate social responsibility csr matters in asian emerging markets based on csr scores compiled by credit lyonnais securities asia we assess the csr performance of major asian firms over a period of 3 years from 2001 to 2004 the results show that there is a positive and significant relation between csr and market valuation among asian firms we further find that csr is positively related to the market valuation of the subsequent year more importantly asian firms are rewarded by the market for improving their csr practice

choice proliferation simplicity seeking and asset allocation abstract in settings such as investing for retirement or choosing a drug plan individuals typically face a large number of options in this paper we analyze how the size of the choice set influences which alternative is selected we present both laboratory experiments and field data that suggest larger choice sets induce a stronger preference for simple easy to understand options the first experiment demonstrates that in seeming violation of the weak axiom of revealed preference subjects are more likely to select a given sure bet over non degenerate gambles when choosing from a set of 11 options than when choosing from a subset of 3 the second experiment clarifies that large choice sets induce a preference for simpler rather than less risky options lastly using records of more than 500 000 employees from 638 institutions we demonstrate that the presence of more funds in an individual s 401 k plan is associated with a greater allocation to money market and bond funds at the expense of equity funds

the compromise effect in action lessons from a restaurant s menu the compromise effect refers to individuals tendency to choose intermediate options its existence has been demonstrated in a large number of hypothetical choice experiments this paper uses field data from a specialties restaurant to investigate the existence and strength of the compromise effect in a natural environment despite the presence of many factors that potentially weaken the compromise effect e g a very large choice set the opportunity to choose familiar options we find evidence for it both in descriptive statistics and regression analyses options which become a compromise after a change in the choice set gain on average five percent in market share we also find that the compromise effect is especially pronounced in groups while for single customers it is statistically insignificant

choose to lose health plan choices from a menu with dominated option we examine the health plan choices that 23 894 employees at a u s firm made from a large menu of options that differed only in financial cost sharing and premium these decisions provide a clear test of the predictions of the standard economic model of insurance choice in the absence of choice frictions because plans were priced so that nearly every plan with a lower deductible was financially dominated by an otherwise identical plan with a high deductible we document that the majority of employees chose dominated plans which resulted in excess spending equivalent to 24 of chosen plan premiums low income employees were significantly more likely to choose dominated plans and most employees did not switch into more financially efficient plans in the subsequent year we show that the choice of dominated plans cannot be rationalized by standard risk preference or any expectations about health risk testing alternative explanations with a series of hypothetical choice experiments we find that the popularity of dominated plans was not primarily driven by the size and complexity of the plan menu nor informed preferences for avoiding high deductibles but by employees lack of understanding of health insurance our findings challenge the standard practice of inferring risk preferences from insurance choices and raise doubts about the welfare benefits of health reforms that expand consumer choice

how product standardization affects choice evidence from the massachusetts health insurance exchange this paper examines the effect of choice architecture on massachusetts health insurance exchange a policy change standardized cost sharing parameters of plans across insurers and altered information presentation post change consumers chose more generous plans and different brands but were not more price sensitive we use a discrete choice model that allows the policy to affect how attributes are valued to decompose the policy s effects into a valuation effect and a product availability effect the brand shifts are largely explained by the availability effect and the generosity shift by the valuation effect a hypothetical choice experiment replicates our results and explores alternative counterfactuals

corporate social responsibility and socially responsible investing a global perspective this research examines the relationship between corporate social responsibility csr and company stock valuation across three regions of the world after a brief introduction the article gives an overview of the evolving definition of csr as well as a discussion of the ways in which this construct has been operationalized presentation of the potential impact of corporate social performance on firm financial performance follows including investor characteristics the rationale behind their choices and their influence on the marketplace for securities worldwide the unique method used to select socially responsible investments is then provided that also includes a description of the quantitative techniques employed in the analyses results are offered subsequently and the close describes implications for global enterprises as socially responsible investments

supply chains global financial shocks and firm behaviour towards liquidity needs driven by the increasingly important role of supply chains in global production this paper studies empirical association between global credit market shocks and firm behaviour towards liquidity needs across countries and industries focusing on the adjustment of working capital financing we find two pieces of supporting evidence from international firm level panel data covering the period 2002 i 2012 iv first for industries where specific investment in the input supplier customer relationship is large firms are more exposed to credit market shocks we find that measures of global credit market shocks are negatively associated with trade receivables trade payables and inventories conditional on the level of contract intensity in the industries where firms operate second firms in emerging markets are more vulnerable to credit market shocks than are firms in developed countries we are also able to verify the economic significance of sales growth operating cash flows cash stock and firm size in the overall adjustment our findings highlight the importance of balance sheet contagion along supply chains during the 2007 09 global financial crisis

evidence on the determinants of credit terms used in interfirm trade trade credit is created whenever a supplier offers terms that allow the buyer to delay payment in this paper we document the rich variation in interfirm credit terms and credit policies across industries we examine empirically the firm s basic credit policy choices whether to extend credit or to require cash payment and if credit is extended whether to adopt simple net terms or terms with discounts for prompt payment we also examine determinants of variations in two part terms results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness trade credit has important economic significance from both micro and macroeconomic perspectives during the 1990s vendor financing has accounted for an average 1 5 trillion of the book value of all assets of u s corporations and has represented approximately 2 5 times the combined value of all new public debt and primary equity issues during a given year as a component of the money supply trade credit in the form of accounts payable exceeds the primary money supply mi by a factor of 1 5 on average 1 clearly efforts to control economic growth through monetary policy can be confounded by aggregate decisions of businesses to increase or decrease reliance on trade credit financing several recent empirical studies examine determinants of firm reliance on trade credit 2 these studies model supply and demand for trade credit using financial statement data accounts receivable and payable 3 however many aspects of trade credit practice are unexplored most notably little is known about the types of credit terms e g net 30 2 10 net 30 and credit policies that are observed across firms and industries the only comprehensive doc

competition and price variation when consumers are loss averse we modify the salop 1979 model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase consumers sensitivity to losses in money increases the price responsiveness of demand and hence the intensity of competition at higher relative to lower market prices reducing or eliminating price variation both within and between products when firms face common stochastic costs in any symmetric equilibrium the markup is strictly decreasing in cost even when firms face different cost distributions we identify conditions under which a focal price equilibrium where firms always charge the same focal price exists and conditions under which any equilibrium is focal

consumer preference for a no choice option the traditional focus in the decision making literature has been on understanding how consumers choose among a given set of alternatives the notion that preference uncertainty may lead to choice deferral when no single alternative has a decisive advantage is tested in seven studies building on recent research the article shows that the decision to defer choice is influenced by the absolute difference in attractiveness among the alternatives provided and is not consistent with trade off difficulty or the theory of search these findings are then extended to show that choice deferral can also be modified for the same alternatives by manipulations that make them appear more similar in attractiveness or that decrease the need to differentiate among them the results are consistent with the notion that preference uncertainty results in a hesitation to commit to any single action since small differences in attractiveness among the alternatives are potentially reversible consistent with this premise the effect of attractiveness difference on choice deferral decreased significantly when subjects were first allowed to practice making monetary trade offs among the available alternatives

a review essay about foundations of neuroeconomic analysis by paul glimcher neuroeconomics aims to discover mechanisms of economic decision and express them mathematically to predict observed choice while the contents of neuroeconomic models and evidence are obviously different than in traditional economics some of the goals are identical to explain and predict choice the effects of comparative statics and perhaps make interesting new welfare judgments that are defensible to this end paul glimcher s important book carefully describes how economics psychological and neural levels of explanation can be linked a structure which has been successful in visual neuroscience as glimcher shows the neural evidence is quite strong for a process of learning valuations through prediction error and a simple model of neural valuation and comparison that corresponds to random utility though subject to normalization which produces menu effects there is also rapidly growing evidence for more complicated constructs in behavioral economics including prospect theory s account of risky choice hyperbolic time discounting level k models of games and social preferences corresponding to internal reward based on what happens to other agents

can socially responsible investment for cleaner production improve the financial performance of spanish pension plans abstract assets under management involved in socially responsible investing almost trebled from 2007 to 2011 in europe led by pension funds such growth has encouraged the implementation of socially responsible activities by companies which have improved their cleaner production methods in order to reduce greenhouse gas emissions total water used energy consumption and waste generated among others integrating environmental social and governance policies for cleaner production into the investment strategy of pension plans could increase their cost deriving from the screening process and or increase the benefits because socially responsible companies in which pension funds invest might achieve a better financial performance than traditional companies which could in turn affect pension plans financial performance for this reason the aim of this paper is two fold firstly to examine the financial performance of spanish pension plans compared to market benchmarks taking into account the category to which they belong and the socially responsible business strategy implemented by the manager and secondly to analyze whether differences in financial performance exist between solidarity pension plans ethical pension plans and traditional pension plans to do this we have a sample of 651 individual system pension plans using these sample data we implement the robust random effects panel data methodology the results show that ethical pension plans which invest in companies that improve their cleaner production methods achieve a similar financial performance to conventional pension plans while solidarity pension plans significantly outperform conventional pension plans

overchoice and assortment type when and why variety backfires almost universally research and practice suggest that a brand that increases its product assortment or variety should benefit through increased market share in this paper we show this is not always the case we introduce the construct assortment type and demonstrate that the effect of assortment size on brand share is systematically moderated by assortment type we define an alignable assortment as a set of brand variants that differ along a single compensatory dimension such that choosing from that assortment only requires within attribute trade offs in contrast we define a nonalignable assortment as a set of brand variants that simultaneously vary along multiple noncompensatory dimensions demanding between attribute trade offs in turn we argue that an alignable assortment can efficiently meet the diverse tastes of consumers thereby increasing brand share but that a nonalignable assortment increases both the cognitive effort and the potential for regret faced by a consumer thereby decreasing brand share we term this effect overchoice across three studies we provide evidence of overchoice and tie the effect to the effort and regret brought about by nonalignability in the process we demonstrate that simplification of information presentation reversibility of choice and a reduction in underlying nonalignability serve to reduce or eliminate this effect

brands as beacons a new source of loyalty to multiproduct firms abstract this study provides evidence that a multiproduct firm s portfolio of products affects consumer purchase decisions about each of the firm s products the authors present a theory that explains this empirical regularity the theory involves revising the information set of consumers to include the profile of multiproduct firms the authors show that revision of the information set in this way introduces a new source of consumer loyalty and explains interesting empirical regularities in consumer behavior for example consumers are loyal to a multiproduct firm even when it does not offer a product that matches their preferences better than a product of competing firms the authors estimate the model and test its implications using panel data on television viewing choices the estimated model also allows for state dependence parameters and unobserved heterogeneity the empirical results support the model and its implications the model offers a parsimonious framework for brand extension strategies and

indecisiveness undesirability and overload revealed through rational choice deferral three reasons why decision makers may defer choice are indecisiveness between various feasible options unattractiveness of these options and choice overload this paper provides a choice theoretic explanation for each of these phenomena by means of three deferral permitting models of decision making that are driven by preference incompleteness undesirability and complexity constraints respectively these models feature rational choice deferral in the sense that whenever the individual does not defer he chooses a most preferred feasible option as a result choices are always consistent with the weak axiom of revealed preference the three models suggest novel ways in which observable data can be used to recover preferences as well as their indecisiveness desirability and complexity components or thresholds several examples illustrate the relevance of these models in empirical and theoretical applications

the questionable value of having a choice of levels of health insurance coverage in most health insurance markets in the united states consumers have substantial choice about their health insurance plan however additional choice is not an unmixed blessing as it creates challenges related to both consumer confusion and adverse selection there is mounting evidence that many people have difficulty understanding the value of insurance coverage like evaluating the relative benefits of lower premiums versus lower deductibles also in most us health insurance markets people cannot be charged different prices for insurance based on their individual level of health risk this creates the potential for well known problems of adverse selection because people will often base the level of health insurance coverage they choose partly on their health status in this essay we examine how the forces of consumer confusion and adverse selection interact with each other and with market institutions to affect how valuable it is to have multiple levels of health insurance coverage available in the market

when more is less and less is more the role of ideal point availability and assortment in consumer choice contrary to the common wisdom that more choice is always better selections made from large assortments can lead to weaker preferences building on the extant literature this research identifies ideal point availability as a key factor moderating the impact of assortment on choice it is proposed that in the case of large assortments ideal point availability can simplify choice leading to a stronger preference for the selected alternative in contrast for choices made from smaller assortments ideal point availability is proposed to have the opposite effect leading to weaker preferences data obtained from four experiments lend support for the theory and the empirical predictions advanced in this article

ballot position choice fatigue and voter behaviour in this paper we examine the eect of choice fatigue on decision making we exploit a natural experiment in which voters face the same contest at dierent ballot positions due to dierences in the number of local issues on their ballot facing more decisions before a given contest signi cantly increases the tendency to abstain or rely on decision shortcuts such as voting for the status quo or the rst listed candidate we estimate that without choice fatigue abstentions would decrease by 8 and 6 of the propositions in our dataset would have passed rather than failed

monopoly provision of product quality with uninformed buyers abstract this essay is concerned with a monopolist s incentives to provide high quality goods when some of its customers cannot observe quality prior to purchase we show that if all buyers have the same tastes for quality the monopolist will not try to take advantage of the poorly informed when tastes differ however some quality randomization may become profitable as a means to loosen binding self selection constraints the profitability of randomization is shown to depend upon the relative degrees of risk aversion of the buyers and on the convexity of the firm s cost of quality function we view our results as pointing to some potential benefits from imperfect quality control

order in product customization decisions evidence from field experiments differentiated product models are predicated on the belief that a product s utility can be derived from the summation of utilities for its individual attributes in one framed field experiment and two natural field experiments we test this assumption by experimentally manipulating the order of attribute presentation in the product customization process of custom made suits and automobiles we find that order affects the design of a suit that people configure and the design and price of a car that people purchase by influencing the likelihood that they will accept the default option suggested by the firm

trade credit and the effect of macro financial shocks evidence from u s panel data using disaggregated panel data we examine how firms change trade credit in response to a monetary tightening we find that both accounts payable and accounts receivable increase with tighter monetary policy implying that trade credit helps firms absorb the effect of a credit contraction further both s p 500 firms and a comparison group of smaller firms increase net trade credit accounts receivable minus payable making up for the reduced liquidity associated with tighter policy however we find no evidence that large firms play this role more actively than smaller firms

a model of cultural differences and international alliance performance we propose a model of cultural differences and international alliance performance to explain the ambiguous findings regarding the influence of national culture differences on alliance performance building on research on national organizational and professional cultures we argue that the closer the domain of a social group is to the value creating activities of an alliance the more disruptive cultural differences between the partners members of that social group will be organizational culture differences will tend to be more disruptive than national culture differences and differences in the professional culture most relevant to alliance value creation typically will be the most disruptive implications for research and managerial practice are discussed and the model s relevance for international r d alliances is highlighted

salience and consumer choice we present a theory of context dependent choice in which a consumer s attention is drawn to salient attributes of goods such as quality or price an attribute is salient for a good when it stands out among the good s attributes relative to that attribute s average level in the choice set or more broadly the choice context consumers attach disproportionately high weight to salient attributes and their choices are tilted toward goods with higher quality price ratios the model accounts for a variety of disparate evidence including decoy effects and context dependent willingness to pay it also suggests a novel theory of misleading sales

approaching socially responsible investment with a comprehensive ratings scheme total social impact the socially responsible investment industry sri is slowly changing from a screening avoidance paradigm to a comprehensive paradigm that seeks to affect corporate behavior credible rating systems are a key component of this sea change reliable and recognizable social and environmental metrics are critical to this progress the total social impact tsi rating approach is a new social metric scheme based on a comprehensive rating of stakeholder issues this paper describes the evolution of sri ratings and the role that tsi hopes to play in affecting business behavior by promoting principled business leadership

experimentation in markets we present a model of entry and exit with bayesian learning and price competition a new product of initially unknown quality is introduced in the market and purchases of the product yield information on its true quality we assume that the performance of the new product is publicly observable as agents learn from the experiments of others informational externalities arise we determine the markov perfect equilibrium prices and allocations in a single market the combination of the informational externalities among the buyers and the strategic pricing by the sellers results in excessive experimentation if the new product is launched in many distinct markets the path of sales converges to the efficient path in the limit as the number of markets grows in multi agent learning situations informational externalities may reduce the number of experiments undertaken below the socially efficient level as buyers choose among new experience goods or firms decide whether to adopt a new technology the availability of information from others decisions gives rise to a free rider problem rather than perform a costly experiment herself a buyer may opt to wait and see how the market evaluates the new product in this paper we develop a simple market model of experimentation and analyse the informational effects in a model with buyers and sellers in contrast to the one sided experimentation problems we find that equilibrium experimentation often exceeds the pareto optimal level in two sided models the first model we consider is a dynamic duopoly in continuous time with homogeneous buyers two firms with differentiated products engage in price competition over time one product has a known value while the other is new and its true value is initially uncertain to all the parties in the model the value of the product is determined by the quality of the match between consumer preferences and product characteristics additional information is acquired only through repeat purchases in each period buyers observe a noisy signal of the true value of the product we assume that all signals are publicly observable and that all uncertainty is about a common value component with this assumption all buyers and sellers condition their behaviour on the same information and we can abstract from individual differences in past observations this is justified in economic situations where public data on other buyers choices is available and informative for example when choosing among providers of communication or transportation services such as mail delivery firms or airlines it is reasonable to rely on consumer reports and other published data in addition to one s private experience we also show that our model has an alternative interpretation as one where a flow of buyers make a once and

revealed p reference theory abstract this paper develops axiomatically a revealed preference theory of reference dependent choice behavior instead of taking the reference for an agent as exogenously given in the description of a choice problem we suitably relax the weak axiom of revealed preference to obtain endogenously the existence of reference alternatives as well as the structure of choice behavior conditional on those alternatives we show how this model captures some well known choice patterns such as the attraction effect jel d11 d81

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

trade credit and productive efficiency in developing countries abstract in developing countries credit shortages are often so severe as to impact a firm s day to day production decisions using firm level data from five african countries i show supplier credit is positively correlated with capacity utilization the result continues to hold when credit access is instrumented using supplier characteristics i claim that this is because firms lacking credit likely face inventory shortages leading to lower rates of capacity utilization this explanation yields several further predictions that are supported by the data there is a positive relationship between supplier credit and inventory holdings moreover raw materials stockouts are positively correlated with capacity utilization particularly in inventory intensive industries

adding asymmetrically dominated alternatives violations of regularity and the similarity hypothesis an asymmetrically dominated alternative is dominated by one item in the set but not by another adding such an alternative to a choice set can increase the probability of choosing the item that dominates it this result points to the inadequacy of many current choice models and suggests product line strategies that might not otherwise be intuitively plausible

in kind finance a theory of trade credit it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash therefore suppliers may lend more liberally than banks this simple argument is at the core of our contract theoretic model of trade credit in competitive markets the model implies that trade credit and bank credit can be either complements or substitutes among other things the model explains why trade credit has short maturity why trade credit is more prevalent in less developed credit markets and why accounts payable of large unrated firms are more countercyclical than those of small firms

bad news an experimental study on the informational effects of rewards both psychologists and economists have argued that rewards often have hidden costs one possible reason is that the principal may have incentives to oer higher rewards when she knows the task to be di cult our experiment tests if high rewards embody such bad news and if this is perceived by their recipients our design allows us to decompose the overall eect of rewards on eort into a direct incentive and an informational eect the results show that most participants correctly interpret high rewards as bad news in accordance with theory the negative informational eect co exists with the direct positive eect

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

prices as signals of product quality this paper is concerned with the provision of quality in markets in which consumers have only imperfect information the analysis focuses on a market for a product that can be produced at different quality levels all consumers prefer higher to lower quality but they may differ in their willingness to pay for quality producers can produce any quality they like but higher qualities are more costly to produce the information in this market is imperfect in the sense that the exact quality chosen by a firm is known only to the firm itself some information about the quality of a firm s product will however reach its potential customers even if they do not make any special effort to acquire it within the framework suggested here two conclusions are drawn first prices may serve as signals which exactly differentiate the available quality levels that is there exists a fulfilledexpectations equilibrium at which each price signals a unique quality level second the pricesignals are not arbitrary each price signal exceeds the marginal cost of producing the quality it signals such a mark up depends on the nature of the product specific information received by consumers the poorer the information the higher the mark up

duopolistic competition with choice overloaded consumers a large body of experimental work has suggested the existence of a choice overload effect in consumer decision making faced with large menus of choice options decision makers often defer or avoid choice a suggested reason for the occurrence of this effect is that the agents attempt to avoid the cognitive effort that is associated with choosing from larger menus building on this explanation we propose and analyse a model of duopolistic competition where firms compete in menu design in the presence of a consumer population with heterogeneous preferences and overload menu size thresholds the firms strategic trade off is between offering a large menu in order to match the preferences of as many consumers as possible and offering a small menu in order to avoid losing choice overloaded consumers to their rival assuming uniformly distributed preferences we focus on symmetric pure strategy equilibria under various assumptions on the overload distribution and product markups we also propose and analyse a measure of consumer welfare that applies to this environment among other things we provide conditions for maximum and minimum variety equilibria to be possible whereby both firms either offer the entire set of available products or the same one product respectively

the effect of cultural differences on behavioral responses to low job satisfaction this article reports the results of a field study that evaluated behavioral responses to low job satisfaction of participants in hong kong and new zealand culture measured by vertical and horizontal individualism and collectivism had both main and moderating effects on responses first cultural groups responded differently to low job satisfaction with exit voice loyalty or neglect second culture moderated the effect of quality of job alternatives and job satisfaction on exit and loyalty and moderated the effect of quality of job alternatives on voice

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

product variety and endogenous pricing with evaluation costs one important decision firms must make is to select the product line characteristics and number of products to offer consumers this paper explores the effect of the interaction between consumer evaluation costs and pricing on the optimal product line length to offer consumers before deciding to buy a product among all products offered a consumer learns the product line length given the product line length a consumer decides whether to evaluate the products available and their prices this decision to evaluate depends on the expected consumer surplus after the evaluation being greater than the evaluation costs when the firm offers few products the firm may not attract many consumers because of lack of product fit and may be forced to offer low prices when the firm offers many products all consumers will find a great product fit that is the variance of consumer valuations per product chosen is lower this allows the firm to charge high prices to extract ex post consumer surplus resulting in lower ex ante expected consumer surplus which may lead consumers not to evaluate the products in the first place that is by offering fewer products a firm can commit not to extract all possible consumer surplus these two forces may then lead to the existence of an interior optimal number of products to offer the optimal number of products offered is decreasing in the evaluation costs

labor supply of politicians using data on members of the european parliament meps we examine the impact of salaries on the composition and the behavior of legislators employing a differences in differences approach we exploit the introduction of a law that equalized meps salaries which had previously differed by as much as a factor of 10 increasing salaries raises the fraction of meps who run for re election but decreases the quality of elected meps proxied by college quality salary has no discernible impact on effort or legislation output higher salaries induce more political competition

contextual inference in markets on the informational content of product lines context can influence decisions this malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings in a market equilibrium however context conveys payoff relevant information to consumers consequently these consumers rationally violate naive formulations of standard choice theoretic principles i identify informational asymmetries under which apparently anomalous behaviors namely the compromise effect and choice overload arise as market equilibria firms respond to consumers contextual inference in case of the compromise effect a firm may introduce premium loss leaders expensive goods of overly high quality that increase the demand for other goods

a rational reconstruction of the compromise effect using market data to infer utilities this article explores the possibility that consumers use market data to make inferences about product utilities the argument is made by means of an example based on the compromise effect found in extant experimental data this phenomenon is generally looked at as a manifestation of deviations from rationality in choice however assuming full rationality i describe a decision rule that is based on consumers inferences about their personal valuation of alternatives from the portfolio of market offerings and some information about their own relative tastes through a number of examples i will argue that consumers often use this or similar decision rules to make inferences about utility i then show that the decision rule may generate compromise effects in experiments and that it may be sustainable the compromise effect could therefore be seen as preliminary evidence that consumers make such inferences

tough and easy choices testing the influence of utility difference on stated certainty in choice in choice experiments respondents in stated preference studies may be uncertain about their preferences for the good presented to them inspired by wang j environ econ manag 32 219 232 1997 we hypothesize that respondents stated certainty in choice increases with the utility difference between the alternative chosen and the best alternative to that we test this hypothesis using data from two independent choice experiments both focusing on nature values in modelling respondents self reported certainty in choice we find evidence that the stated level of certainty increases significantly as utility difference in choice sets increases in addition stated certainty increases with income furthermore there is some evidence that male respondents are inherently more certain in their choices than females and a learning effect may increase stated certainty we find evidence of this in the first study where the good is described in rather broad and generic terms but not in the second study where a more specific description of the good is used

vice or virtue the impact of corporate social responsibility on executive compensation we empirically examine the impact of corporate social responsibility csr on ceo compensation using a large sample of the us firms from 1996 to 2010 we develop and test two hypotheses the overinvestment hypothesis based on agency theory and the conflict resolution hypothesis based on stakeholder theory we find that the lag of csr adversely affects both total compensation and cash compensation after controlling for various firm and board characteristics our estimates show that an interquartile increase in csr is followed by a 4 35 2 78 decrease in total cash compensation we also find an inverse association between lagged employee relations and ceo compensation our results are robust to the correction for endogeneity using instrumental variable approach taken together our results support the conflict resolution hypothesis but not the csr overinvestment argument

choice based on reasons the case of attraction and compromise effects building on previous research this article proposes that choice behavior under preference uncertainty may be easier to explain by assuming that consumers select the alternative supported by the best reasons this approach provides an explanation for the so called attraction effect and leads to the prediction of a compromise effect consistent with the hypotheses the results indicate that 1 brands tend to gain share when they become compromise alternatives in a choice set 2 attraction and compromise effects tend to be stronger among subjects who expect to justify their decisions to others and 3 selections of dominating and compromise brands are associated with more elaborate and difficult decisions

internal consistency of choice internal consistency of choice has been a central concept in economics decision theory and social choice this idea is essentially confused we cannot determine whether a choice function is consistent without referring to something external to choice e g objectives values the standard results have to be reexamined in this light kenneth j arrow s general possibility theorem is extended in this paper without demanding any internal consistency of social choice or any notion of social rationality copyright 1993 by the econometric society

optimal product line design when consumers exhibit choice set dependent preferences in a market of consumers with varying willingness to pay using product line as a discrimination tool may extract higher profits than serving all consumers with a single product local context effects however point to yet another consideration in designing product lines how the appeal of a product changes with the context provided by other products in the choice set i present a model of product line design that incorporates both discrimination and context management goals and offers recommendations for the variety and positioning of products to this end the model makes use of a framework that allows preferences to be choice set dependent given this framework i study how the firm manages externalities between products created by such dependencies the firm creates distortions above and beyond those resulting from discrimination motives alone for example in a vertically differentiated market for quality quality distortions exist even for the consumers with the highest valuations the range of quality provisions given the number of products is compressed as the relative importance of unfavorable comparisons among products increases surprisingly this compression may even lead the firm to forego discrimination among consumers regardless of the cost of offering distinct products

signaling low margin through assortment oftentimes close competitors carry partially overlapping assortments in seeming contradiction to the principle of maximum differentiation one of the justifications of such practice is that an overlapping assortment with competitive prices on the common products may prevent further consumer search and therefore could be useful even when profits from the overlapping products do not justify the costs of carrying them in this paper we examine the validity of this intuition and show that such strategy may indeed be optimal when consumers are uncertain about prices they might find elsewhere and face shopping costs for discovery of all prices specifically we show that the larger assortment with product overlap may signal a competitive price of the relatively unique product and prevent further consumer search for a lower price on it an implication of this finding is that a consumer may rationally behave as if she likes a larger assortment even if the assortment is enlarged by adding products the consum

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

consideration sets and competitive marketing we present a model of competitive marketing based on the notion that consumers are boundedly rational and that firms use marketing tactics in an attempt to influence consumers decision process the standard model of consumer behaviour assumes that the consumer applies well defined preferences to a perfectly perceived set of available alternatives we retain the assumption that consumers have stable preferences but relax the assumption that they have a perfect perception of what is relevant for their consumption problem thus allowing firms to manipulate that perception our aim is to explore the market implications of this departure from the standard model especially for the way firms deploy marketing strategies in competitive environments the cornerstone of our model is the observation that in the modern marketplace consumers face an overwhelmingly large variety of products and therefore often use screening criteria deliberate as well as unconscious in order to reduce the number of relevant alternatives as a result consumers apply their preferences not to the set of objectively feasible alternatives but to a potentially smaller set which they construct at an earlier stage of the decision process borrowing a term from the marketing literature we refer to this set as the consideration set the basic idea underlying this term is that consumers may be unaware of some of the feasible products and even when they become aware of a new product they still need to be persuaded to consider it as a potential substitute to their currently consumed product

the self selection of complexity in choice experiments we investigate whether individuals will voluntarily increase the complexity of the tasks they complete within a discrete choice experiment dce we do this via a self selection of complexity design in which respondents choose whether to face choice sets comprising 3 4 or 6 alternatives we link this approach with the emerging excessive choice effect ece literature we find that 30 of the sample opt for the largest sets we test whether this choice of complexity reveals information about respondents capability commitment we find that it does since those with lowest initial error variance levels are most likely to later select the highest level of task complexity we argue that this result offers insights regarding the design of more cognitively efficient dce designs we consider the matching of respondents to the appropriate level of task complexity as analogous to the principal agent problem with asymmetric information rather than trying to understand respondents cognitive capability or commitment ex ante we propose that participants self select designs that achieve the researcher s objective of minimizing error variance copyright 2012 oxford university press

design choices in privatized social security systems learning from the swedish experience in the 2000 u s presidential campaign george w bush advocated a partial privatization of the social security system according to his plan a portion of the payroll tax would be designated for individual savings accounts at the same time as this issue was being debated in the united states sweden was in the process of launching a system that is very similar to president bush s proposal although bush s plan did not get much attention in the early years of his administration the proposal may resurface either in the united states or in other countries if so important lessons can be learned from the swedish experience in particular the swedish plan adopted an interesting mix of design choices that can now be evaluated based on three years of post implementation experience although there is a large literature in economics on the design of social security systems most of that literature is concerned with macroeconomic considerations such as funding in contrast there has been much less attention devoted to the details of how plans might be designed in part because these details do not seem important from a standard economic perspective in this paper we reverse this usual pattern and focus our attention on the design aspects of the swedish plan we find that although most of the design choices are those that might be approved by most economists in some cases these choices produced undesirable consequences

de targeting advertising an assortment of products to loss averse consumers we consider product markets in which consumers are interested only in a specific product category and initially do not know which product category matches their tastes using sophisticated tracking technologies an intermediary can make inferences about a consumer s preferred product category and offer advertising firms the possibility to target their ads to match the consumer s taste such targeting reduces overall advertising costs and as a direct effect increases industry profits however as we show in this paper when consumers form reference prices and are loss averse more precise targeting may intensify competition between firms as a result firms may earn higher profits from de targeted advertising i e when the intermediary deliberately informs about some products and their price quotes from outside a consumer s preferred product category

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

business ethics corporate good citizenship and the corporate social policy process a view from the united states within the american context the term corporate good citizenship a rather vague and somewhat dated notion bears little relationship to the concept of business ethics whereas the latter refers to systematic reflection on the moral significance of the institutions policies and behavior of business actors in the normal course of their business operations the former is a subset of the broader notion of corporate social responsibility and denotes generally discretionary possibly altruistic non business relationships between business organizations and diverse community stakeholders a newer concept the corporate social policy process which focuses on the institutionalization within business organizations of processes facilitating individual and organizational reflection and choice regarding the moral significance of personal and organizational action together with a consideration of the likely consequences of such action provides analytical linkages between business ethics and corporate good citizenship which can be useful to business scholars and operating managers alike specific aspects of corporate good citizenship including corporate community involvements are examined and particular attention is paid to current trends in corporate donations including an increasing emphasis on strategic philanthropy which explicitly mixes practical and benevolent motives in company giving policies and practices

trading off the benefits and costs of choice evidence from australian elections abstract i investigate the robust predictions of a theory on the costs and benefits of dealing with increased numbers of choices in an election context my data consist of a rich array of measures of voting behaviors and corresponding ballot and voter population characteristics for a panel of electoral districts from three australian federal election cycles i examine how the number of candidates and voting tickets on the ballot as well as key moderating variables affect the share of voters 1 opting for a simplified alternative to the baseline voting process and 2 intentionally casting an invalid ballot the findings indicate that incremental options can increase or decrease motivation to engage in a choice process the overall pattern of results appears consistent with a diminishing returns model of expanded choice voters appear to trade off costs and benefits rationally in their decisions concerning how and whether to make choices public policies and private strategies should leverage moderating variables to encourage participation in choice processes and should account for opt out tendencies at both ends of the choice spectrum

rationalizing choice with multi self models this paper studies a class of multi self decision making models proposed in economics psychology and marketing in this class choices arise from the set dependent aggregation of a collection of utility functions where the aggregation procedure satises some simple properties we propose a method for characterizing the extent of irrationality in a choice behavior and use this measure to provide a lower bound on the set of choice behaviors that can be rationalized with n utility functions under an additional assumption scale invariance we show that generically at most ve reasons are needed for every mistake

the discriminating consumer product proliferation and willingness to pay for quality abstract the authors propose that a crowded product space motivates consumers to better discriminate between options of different quality specifically this article reports evidence from three controlled experiments and one natural experiment that people are prepared to pay more for high quality products and less for low quality products when they are considered in the context of a dense as opposed to a sparse set of alternatives to explain this effect the authors argue that consumers uncertain about the importance of quality learn from observing market outcomes product proliferation reveals that other consumers care to discriminate among similar alternatives and in turn this inference raises the importance of quality in decision making

too much information information provision and search costs a seller often needs to determine the amount of product information to provide to consumers we model costly consumer information search in the presence of limited information we derive the consumer s optimal stopping rule for the search process we find that in general there is an intermediate amount of information that maximizes the likelihood of purchase if too much information is provided some of it is not as useful for the purchase decision the average informativeness per search occasion is too low and consumers end up choosing not to purchase the product if too little information is provided consumers may end up not having sufficient information to decide to purchase the product the optimal amount of information increases with the consumer s ex ante valuation of the product because with greater ex ante valuation by the consumer the firm wants to offer sufficient information for the consumer to be less likely to run out of information to check one can also show that there is an intermedi

when more alternatives lead to less choice this paper shows that when the alternatives offered to consumers span the preference space as it would be chosen by a firm search or evaluation costs may lead consumers not to search and not to choose if too many or too few alternatives are offered if too many alternatives are offered then the consumer may have to engage in many searches or evaluations to find a satisfactory fit this may be too costly and result in the consumer avoiding making a choice altogether if too few alternatives are offered then the consumer may not search or choose fearing that an acceptable choice is unlikely these two forces result in the existence of a finite optimal number of alternatives that maximizes the probability of choice

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

improving diversification opportunities for socially responsible investors socially responsible investment sri has grown enormously and has expanded globally in recent years it allows sri investors to reduce their portfolio risk assumptions through international diversification in this context the aim of this paper is twofold i to examine price and volatility linkages among the most representative sri indexes for north america europe and asia pacific employing a multivariate approach and ii to provide the out of sample performance of an optimal portfolio constructed on the basis of time varying return and volatility forecasts from this specification approach our overall results show that using this technique it is possible to reduce risk and out perform the naive rule which is usually employed in this type of investment these findings are relevant not only for academics but also for practitioners especially for professional managers of sri portfolios

balance sheet contagion japan has been in a slump for the past decade after gdp had been growing by on average 4 percent during the 1980 s the growth rate dropped to 1 percent in the 1990 s asset prices also fluctuated significantly capital gains on stocks and real estate in the 1980 s followed by capital losses in the 1990 s were both on the order of a few years worth of gdp even after taking inflation into account together with production and asset prices the fraction of nonperforming loans fluctuated substantially these are by no means all bank loans for the nonfinancial corporate sector in japan the ratio of financial assets to total assets is about 40 percent much higher than in the united states such financial assets include loans to and securities of other private agents that is nonfinancial institutions simultaneously borrow from and lend to each other on a significant scale many nonperforming loans are interlocked paralyzing the financial system it is important to recognize that these swings have been experienced by almost all sectors of the japanese economy yet in other countries comparable movements in asset prices have had less widespread consequences for example the recent fluctuations in the nasdaq index in the united states have been no smaller than those of asset prices in japan but the damage appears to be contained to closely related sectors although u s equity holders particularly pension funds have lost value the level of nonperforming loans is relatively limited up to now the question is why does there appear to be more contagion in some countries than in others has contagion anything to do with the nature of financing or the extent to which there are inter locking loans in this theoretical paper we examine two different mechanisms by which contagion may occur in both cases propagation is through balancesheet effects first through the indirect effects that fluctuations in asset prices have on collateral values second through the direct effects that default on or postponement of debt repayments have when there are chains of credit

motives and performance outcomes of sustainable supply chain management practices a multi theoretical perspective many researchers believe the tremendous industrial development over the past two centuries is unsustainable because it has led to unintended ecological deterioration despite the ever growing attention sustainable supply chain management sscm has received most sscm research and models look at the consequences rather than the antecedents or motives of such responsible practices the few studies that explore corporate motives have remained largely qualitative and large scale empirical analyses are scarce drawing on multiple theories and combining supply chain and business ethics literature we purport that instrumental relational and moral motives are behind a firm s engagement in sscm practices specifically we examine the links between corporate motives sscm practices and firm performance using a sample of 259 supply chain firms in germany we empirically test five hypothesized relationships our results reveal that relational and moral motives are key drivers and that firms exhibiting high levels of moral obligations tend to outperform those primarily driven by amoral considerations findings of this study contribute to multiple literatures espousing sustainability management and can help policy makers stakeholder groups and scholars develop more robust strategies for encouraging firms to practice sscm

corporate trade credit and inventories new evidence of a trade off from accounts payable and receivable abstract trade credit is an important source of finance for firms and has been well researched but the focus has been on financial trade offs in this paper we consider the trade offs with inventories and develop a simple model that recognizes the incentives a firm faces to offer and receive trade credit our model identifies the response of accounts payable and accounts receivable to changes in the cost of inventories profitability risk and liquidity and importantly this influence operates through a production channel our results support the model and complement many existing studies focused on explaining the financial terms of trade credit

last place aversion evidence and redistributive implications we present evidence from laboratory experiments showing that individuals are last place averse participants choose gambles with the potential to move them out of last place that they reject when randomly placed in other parts of the distribution in modified dictator games participants randomly placed in second to last place are the most likely to give money to the person one rank above them instead of the person one rank below last place aversion suggests that low income individuals might oppose redistribution because it could differentially help the group just beneath them using survey data we show that individuals making just above the minimum wage are the most likely to oppose its increase similarly in the general social survey those above poverty but below median income support redistribution significantly less than their background characteristics would predict jel codes h23 d31 c91