the impact of mandatory disclosure laws on product choices an analysis of the salad dressing market abstract the nutrition labeling and education act nlea requires most food products to include a nutrition label prior to the nlea labeling was voluntary this study uses nutrition label information and supermarket scanner data pre and post nlea to examine the impact of moving from a voluntary to a mandatory labeling regime on consumer product choice the voluntary unraveling of information is shown to be an important market mechanism prior to the nlea all low fat salad dressings had a nutrition label while the majority of the higher fat dressings did not however there remained large variation in fat content among dressings that did not voluntarily label those with the highest fat levels experienced a significant decline in sales after they were required to disclose the results indicate that even in markets with credible low cost mechanisms to disclose mandatory labeling can have an impact on consumer behavior and health

the nature of social learning experimental evidence in the wide economic literature on social learning many types of behavior rational and non rational have been proposed i suggest a level k model that unifies many of them in one framework this paper analyzes experimental data that is able to distinguish between levels of reasoning at the individual level it relies on rich existing data from celen and kariv 2004 as well as new experimental data that includes written accounts of reasoning from incentivized intra team communication three datasets provide consistent evidence that naive inference in form of the best response to truthful play is the most common approach to social learning the empirical type distributions feature heterogeneity similar to other level k applications

board composition and financial performance uncovering the effects of diversity in an emerging economy we examine the key elements of board diversity or heterogeneity amongst listed companies operating in an emerging economy mauritius and the extent to which these influence financial performance specifically we ask whether there is evidence of tangible benefits in pursuing a strategy of board diversity in terms of gender age educational background and independence in a corporate context which has long been dominated by family led and closed boardrooms in light of recent corporate governance developments which appear to foster greater diversity we examine data from the 2007 annual reports of all 42 companies listed on the stock exchange of mauritius we find that i women remain poorly represented on boards ii there is a relatively satisfactory level of heterogeneity in terms of educational background age and independence in relation to developed countries we also find significant regression coefficients for all four variables in terms of their impact on short term performance however these relationships are characterised by both negative and positive impacts thereby leading to discussions on the validity of a strict heterogeneous or homogeneous board composition in the context of a developing economy

boundedly rational versus optimization based models of strategic thinking and learning in games harstad and selten s article in this forum performs a valuable service by highlighting the dominance of optimization based models over boundedly rational models in modern microeconomics and questioning whether optimization based models are a better way forward than boundedly rational models this article complements rabin s response to harstad and selten focusing on modeling strategic behavior i consider harstad and selten s examples and proposed boundedly rational models in the light of modern behavioral economics and behavioral game theory commenting on the challenges that remain and the most promising ways forward

board size and diversity as governance mechanisms in community development loan funds in the usa community development loan funds cdlfs in the us help revitalize low income communities by providing financial services to underserved populations this article uses recently available data from several surveys to explore the link between performance and board size and diversity given the unique nature of cdlfs specific hypotheses are formulated based on insights from the literature on governance in banks and nonprofit institutions to capture the cdlfs multiple objectives the article adapts an empirical approach used to study governance in banks the results show that efficiency improves as the board size increases up to 13 members the results also suggest that gender diversity has a positive impact while racial diversity is associated with a negative but negligibly small impact

imperfect choice or imperfect attention understanding strategic thinking in private information games to understand the thinking process in private information games we use mousetracking to record which payoffs subjects attend to the games have three information states and vary in strategic complexity subjects consistently deviate from nash equilibrium choices and often fail to look at payoffs which they need to in order to compute an equilibrium response choices and lookups are similar when stakes are higher when cluster analysis is used to group subjects according to lookup patterns and choices three clusters appear to correspond approximately to level 3 level 2 and level 1 thinking in level k models and a fourth cluster is consistent with inferential mistakes as for example in qre or cursed equilibrium theories deviations from nash play are associated with failure to look at the necessary payoffs the time durations of looking at key payoffs can predict choices to some extent at the individual level and at the trial by trial level

ceo characteristics and firm r d spending over the past fifteen years a number of studies have examined the determinants of firm r d spending these studies however almost invariably focus on the role of firm or external ownership characteristics in predicting r d spending while overlooking the attributes of the top managers involved in allocating corporate resources in this study we change that focus by empirically examining how r d spending as compared to industry competitors varies at firms based on the characteristics of their ceos using a sample of publicly traded firms we find that ceo characteristics explain a significant proportion of the sample variance in firm r d spending even when corporate strategy ownership structure and other firm level attributes are controlled in terms of individual ceo characteristics we find that r d spending is greater at firms where ceos are younger have greater wealth invested in firm stock and signifacant career experience in marketing and or engineering r d in contrast to existing theory we find that the amount of a ceo s formal education had no significant association with r d spending once a ceo has attained a college degree however significant r d spending increases are found at firms where ceos have advanced science related degrees from subgroup analyses we further find that ceo effects on relative r d spending increase with longer ceo tenure implying that ceos over time may mold r d spending to suit their own preferences from these results we make implications for both research on determinants of r d spending and managerial practice

correlation neglect in belief formation many information structures generate correlated rather than mutually independent signals the news media being a prime example this article provides experimental evidence that many people neglect the resulting double counting problem in the updating process in consequence beliefs are too sensitive to the ubiquitous telling and re telling of stories and exhibit excessive swings we identify substantial and systematic heterogeneity in the presence of the bias and investigate the underlying mechanisms the evidence points to the paramount importance of complexity in combination with people s problems in identifying and thinking through the correlation even though most participants in principle have the computational skills that are necessary to develop rational beliefs many approach the problem in a wrong way when the environment is moderately complex thus experimentally nudging people s focus towards the correlation and the underlying independent signals has large effects on beliefs

agency relationships in family firms theory and evidence does owner management necessarily eliminate the agency costs of ownership drawing on agency literature and on the economic theory of the household we argue that private ownership and owner management expose privately held owner managed firms to agency threats ignored by jensen s and meckling s 1976 agency model private ownership and owner management not only reduce the effectiveness of external control mechanisms they also expose firms to a self control problem created by incentives that cause owners to take actions which harm themselves as well as those around them jensen 1994 p 43 thus shareholders have incentive to invest resources in curbing both managerialand owner opportunism we extend this thesis to the domain of the family firm after developing hypotheses which describe how family dynamics and specifically altruism exacerbate agency problems experienced by these privately held owner managed firms we use data obtained from a large scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory finally we discuss the implications of our theory for research on family and other types of privately held owner managed firms

volatility in productivity and the impact on unemployment volatility and the uncertainty it creates has long been recognized as a factor in economic decision making since hiring occurs before shocks to productivity are realized firms investment in ne

overcoming coordination failure in a critical mass game strategic motives and action disclosure abstract we study whether coordination failure is more often overcome if players can disclose their actions at a lower cost in an experiment subjects first choose their action and then choose whether to disclose this action to other group members and disclosure costs are varied between treatments we find that no group overcomes coordination failure when action disclosure costs are high but half of the groups do so when the costs are low simulations with a belief learning model can predict which groups will overcome coordination failure but only if it is assumed that players are either farsighted risk seeking or pro social to distinguish between these explanations we collected additional data on individual preferences and the degree of farsightedness we find that in the low cost treatment players classified as more farsighted more often deviate from an inefficient convention and disclose this action while the effect of risk and social preferences is not significant

why does trend growth affect equilibrium employment a new explanation of an old puzzle that the employment rate appears to respond to changes in trend growth is an enduring macroeconomic puzzle this paper shows that in the presence of a return to experience a slowdown in productivity growth raises reservation wages thereby lowering aggregate employment the paper develops new evidence that shows this mechanism is important for ex

pinocchio s pupil using eyetracking and pupil dilation to understand truth telling and deception in sender receiver games we conduct laboratory experiments on sender receiver games with an incentive for senders to exaggerate such as security analyst s painting a rosy picture about earnings prospects our results show that overcommunicati on messages are more informative of the true state than they should be in equilibri um is consistent with a level k model eyetracking shows that senders look much more on the payoff rows corresponding to the true state and much less at receiver payoffs than at their own payoffs senders pupils also dilate more when their deception is larger in magnitude together these data are consistent with the hypothesis that figuring out ho w to deceive another player is cognitively difficult as assumed in the level k mod el a combination of sender messages and lookup patterns predicts the true state about t wice as often as predicted by equilibrium using these measures would enable receiver subjects to hypothetically earn up to 16 21 percent more than they actually do

board diversity and firm performance evidence from the u k smes this study examines the relationship between board diversity and firm performance in small and medium sized enterprises smes in the u k in particular we investigate the role of gender and age

coordination under limited depth of reasoning this paper provides the first unified explanation of behavior in coordinated attack games under both public and private information it demonstrates that the main experimental results such as threshold strategies comparative statics and the differences in behavior under public and private information are robust predictions of limited depth of reasoning models this is in contrast to equilibrium which mispredicts the coordinating roles of public and private information the analysis has implications for understanding macroeconomic phenomena like currency attacks and debt crises which are commonly modeled using incomplete information coordinated attack games

gain loss framing in interdependent choice abstract framing influences choice however little is known about the underlying mechanisms behind framing effects we study gain loss framing in binary modified dictator games subjects choose the selfish option more often in the loss frame compared to the gain frame recording visual fixations with eye tracking we find that dictators focus more on their own outcomes when facing losses this suggests that losses to the own outcome are weighted more than losses to another player

strategic sophistication and attention in games an eye tracking study abstract we used eye tracking to measure the dynamic patterns of visual information acquisition in two player normal form games participants played one shot games in which either neither or only one of the players had a dominant strategy first we performed a mixture models cluster analysis to group participants into types according to the pattern of visual information acquisition observed in a single class of games then we predicted agents choices in different classes of games and observed that patterns of visual information acquisition were game invariant our method allowed us to predict whether the decision process would lead to equilibrium choices or not and to attribute out of equilibrium responses to limited cognitive capacities or social motives our results suggest the existence of individually heterogeneous but stable patterns of visual information acquisition based on subjective levels of strategic sophistication and social preferences

a women s boom in the boardroom effects on performance this article analyzes whether improving gender diversity in boardrooms improves firms economic performance in the context of french cac40 listed companies between 2008 and 2012 this research uses instrumental variable panel regressions including production frontier estimates to arrive at two key results first gender diversity in boards depends on firms attributes including their previous gender promotion strategies second promoting women in boardrooms has a significant and positive effect on economic performance after accounting for the endogeneity of diversity gender diversity even reduces corporate inefficiencies and enables firms to come closer to their optimal performance

heterogeneous quantal response equilibrium and cognitive hierarchies we explore an equilibrium model of games where behavior is given by logit response functions but payoff responsiveness and beliefs about others responsiveness are heterogeneous we study two substantively different ways of extending quantal response equilibrium qre to this setting 1 heterogeneus qre where players share identical correct beliefs about the distribution of payoff responsiveness and 2 truncated qre where players have downward looking beliefs systematically underestimating others responsiveness we show that the cognitive hierarchy model is a special case of truncated qre we conduct experiments designed to differentiate these approaches we find significant evidence of payoff responsive stochastic choice and of heterogeneity and downward looking beliefs in some games

the nature of information and its effect on bidding behavior laboratory evidence in a first price common value auction abstract we study in the laboratory a series of first price sealed bid auctions of a common value good bidders face three types of information private information public information and common uncertainty auctions are characterized by the relative size of these three information elements only half of our subjects bid differently depending on whether the last piece of information obtained is private or public but they do not react to each type of information as predicted by theory the other half of the subjects do not distinguish between private and public information and either consistently underbid or consistently overbid

the effect of information on product quality evidence from restaurant hygiene grade cards this study examines the effect of an increase in product quality information to consumers on e rms choices of product quality in 1998 los angeles county introduced hygiene quality grade cards to be displayed in restaurant windows we show that the grade cards cause i restaurant health inspection scores to increase ii consumer demand to become sensitive to changes in restaurants hygiene quality and iii the number of foodborne illness hospitalizations to decrease we also provide evidence that this improvement in health outcomes is not fully explained by consumers substituting from poor hygiene restaurants to good hygiene restaurants these results imply that the grade cards cause restaurants to make hygiene quality improvements

optimal fiscal and monetary policy equivalence results in this article we analyze the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy we consider standard monetary economies that differ in the price setting restrictions imposed on the firms we show that independently of the degree or type of price stickiness it is possible to implement the same efficient set of allocations and that each allocation in that set is implemented with policies that are also independent of the price stickiness in this sense environments with different price setting restrictions are equivalent

costly information acquisition experimental analysis of a boundedly rational model the directed cognition model assumes that agents use partially myopic option value calculations to select their next cognitive operation the current paper tests this model by studying information acquisition in two experiments in the first experiment information acquisition has an explicit financial cost in the second experiment information acquisition is costly because time is scarce the directed cognition model successfully predicts aggregate information acquisition patterns in these experiments when the directed cognition model and the fully rational model make demonstrably different predictions the directed cognition model better matches the laboratory evidence jel d83

gender diversity in the boardroom and firm financial performance the monitoring role performed by the board of directors is an important corporate governance control mechanism especially in countries where external mechanisms are less well developed the gender composition of the board can affect the quality of this monitoring role and thus the financial performance of the firm this is part of the business case for female participation on boards though arguments may also be framed in terms of ethical considerations while the issue of board gender diversity has attracted growing research interest in recent years most empirical results are based on u s data this article adds to a growing number of non u s studies by investigating the link between the gender diversity of the board and firm financial performance in spain a country which historically has had minimal female participation in the workforce but which has now introduced legislation to improve equality of opportunities we investigate the topic using panel data analysis and find that gender diversity as measured by the percentage of women on the board and by the blau and shannon indices has a positive effect on firm value and that the opposite causal relationship is not significant our study suggests that investors in spain do not penalise firms which increase their female board membership and that greater gender diversity may generate economic gains

revisiting games of incomplete information with analogy based expectations this paper studies the effects of analogy based expectations in static two player games of incomplete information players are assumed to be boundedly rational in the way they forecast their opponent s state contingent strategy they bundle states into analogy classes and play best responses to their opponent s average strategy in those analogy classes we provide general properties of analogy based expectation equilibria and apply the model to a variety of well known games we characterize conditions on the analogy partitions for successful coordination in coordination games under incomplete information rubinstein a 1989 the electronic mail game strategic behavior under almost common knowledge amer econ rev 79 385 391 we show how analogy grouping of the receiver may facilitate information transmission in crawford and sobel s cheap talk games crawford v p sobel j 1982 strategic information transmission econometrica 50 1431 1451 and we show how analogy grouping may give rise to betting in zero sum betting games such as those studied to illustrate the no trade theorem

evolution of modern business cycle models accounting for the great recession modern business cycle theory focuses on the study of dynamic stochastic general equilibrium dsge models that generate aggregate fluctuations similar to those experienced by actual economies we discuss how these modern business cycle models have evolved across three generations from their roots in the early real business cycle models of the late 1970s through the turmoil of the great recession four decades later the first generation models were real that is without a monetary sector business cycle models that primarily explored whether a small number of shocks often one or two could generate fluctuations similar to those observed in aggregate variables such as output consumption investment and hours these basic models disciplined their key parameters with micro evidence and were remarkably successful in matching these aggregate variables a second generation of these models incorporated frictions such as sticky prices and wages these models were primarily developed to be used in central banks for short term forecasting purposes and for performing counterfactual policy experiments a third generation of business cycle models incorporate the rich heterogeneity of patterns from the micro data a defining characteristic of these models is not the heterogeneity among model agents they accommodate nor the micro level evidence they rely on although both are common but rather the insistence that any new parameters or feature included be explicitly disciplined by direct evidence we show how two versions of this latest generation of modern business cycle models which are real business cycle models with frictions in labor and financial markets can account respectively for the aggregate and the cross regional fluctuations observed in the united states during the great recession

quantal response and nonequilibrium beliefs explain overbidding in maximum value auctions we report new experimental data on a simple common value auction to investigate the extent to which bidding can be explained by logit qre in combination with different models about bidder beliefs cursed equilibrium level k and cognitive hierarchy there is a close correspondence between the predicted bidding patterns in those models and the distribution of observed bids the pattern of median bids in the data consists of a combination of overbidding with low signals and near value bidding with higher signals logit qre with heterogeneous bidders approximates this pattern combining qre with any of the other models of belief formation leads to a closer match with the data all the estimated models predict only small treatment effects across different versions of the game consistent with the data we also reanalyze an earlier dataset for the same game ivanov et al 2010 which exhibited much more overbidding and reach similar qualitative conclusions

evolution in games with endogenous mistake probabilities abstract j bergin and b lipman econometrica 64 1996 943 956 show that the selection effect from the random mutations in the adaptive population dynamics in m kandori g mailath and r rob econometrica 61 1993 29 56 and p young econometrica 61 1993 57 84 is due to restrictions on how these mutation rates vary across population states we here model mutation rates as endogenously determined mistake probabilities by assuming that players with some effort can control the probability of implementing the intended strategy this is shown to corroborate the results in kandori mailath rob 1993 and under certain regularity conditions those in young 1993 journal of economic literature classification number c72

does board gender diversity have a financial impact evidence using stock portfolio performance there is growing regulatory pressure on firms worldwide to address the under representation of women in senior positions regulators have taken a variety of approaches to the issue we investigate a jurisdiction that has issued recommendations and disclosure requirements rather than implementing quotas much of the rhetoric surrounding gender diversity centres on whether diversity has a financial impact in this paper we take an aggregate market level approach and compare the performance of portfolios of firms with gender diverse boards to those without we also investigate whether having multiple women on the board is linked to performance and if there is a within industry effect overall we do not find evidence of an association between diversity and performance we find some weak evidence of a negative correlation between having multiple women on the board and performance but that in some industries diversity is positively correlated with performance

the changing of the boards the impact on firm valuation of mandated female board representation in 2003 a new law required that 40 of norwegian firms directors be women at the time only 9 of directors were women we use the prequota cross sectional variation in female board representation to instrument for exogenous changes to corporate boards following the quota we find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in tobin s q over the following years consistent with the idea that firms choose boards to maximize value the quota led to younger and less experienced boards increases in leverage and acquisitions and deterioration in operating performance copyright 2012 oxford university press

the effects of women on corporate boards on firm value financial performance and ethical and social compliance the european commission has recently proposed the introduction of legally binding quotas for women on corporate boards of european companies this proposal has put the spotlight on the question of whether increasing female representation on the board brings economic benefits to the firm in order to shed light on the issue this study investigates the direct and indirect effects of women on the board on firm value we use a simultaneous equation model to estimate the effects of women on the board on firm value financial performance and compliance with ethical and social principles adopted by the firm we find no evidence that a higher female representation on the board directly affects firm s value however we find indirect effects women on the board are positively related with financial performance measured in terms of return on assets and return on sales and with ethical and social compliance which in turn are positively related with firm value the findings in this study suggest that greater female representation on corporate boards of large european firms can increase firm value indirectly further part of the indirect effect comes from stronger compliance with ethical principles something that is not captured by accounting based financial performance

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

recombinant estimation for normal form games with applications to auctions and bargaining abstract when analyzing economic games researchers frequently estimate quantities describing group outcomes such as the expected revenue in an auction for such applications we propose an improved statistical estimation technique called recombinant estimation the technique takes observations of players strategies and recombines them to compute all possible group outcomes that could have resulted from different player combinations in applications to an auction and a bargaining game the improved efficiency of our estimator is equivalent to increasing the sample size between 25 and 200 we discuss how to design experiments in order to utilize recombinant estimation we also discuss practical computational issues and provide software for computing estimates and standard errors

lying for strategic advantage rational and boundedly rational misrepresentation of intentions starting from hendricks and mcafee s 2000 example of the allies decision to feint at calais and attack at normandy on d day this paper models misrepresentation of intentions to competitors or enemies allowing for the possibility of bounded strategic rationality and rational players responses to it yields a sensible account of lying via costless noiseless messages in many cases the model has generically unique pure strategy sequential equilibria in which rational players exploit boundedly rational players but are not themselves fooled in others the model has generically essentially unique mixed strategy sequential equilibria in which rational players strategies protect all players from exploitation