Searching for the sunk cost fallacy

We seek to isolate in the laboratory factors that encourage and discourage the sunk cost fallacy. Subjects play a computer game in which they decide whether to keep digging for treasure on an island or to sink a cost (which will turn out to be either high or low) to move to another island. The research hypothesis is that subjects will stay longer on islands that were more costly to find. Eleven treatment variables are considered, e.g. alternative visual displays, whether the treasure value of an island is shown on arrival or discovered by trial and error, and alternative parameters for sunk costs. The data reveal a surprisingly small sunk cost effect that is generally insensitive to the proposed psychological drivers. Electronic Supplementary Material Supplementary material is available in the online version of this article at . Jel Classification C91, D11     

Using clustering ensemble to identify banking business models

The business models of banks are often seen as the result of a variety of simultaneously determined managerial choices, such as those regarding the types of activities, funding sources, level of diversification, and size. Moreover, owing to the fuzziness of data and the possibility that some banks may combine features of different business models, the use of hard clustering methods has often led to poorly identified business models. In this paper we propose a framework to deal with these challenges based on an ensemble of three unsupervised clustering methods to identify banking business models: fuzzy c‐means (which allows us to handle fuzzy clustering), self‐organizing maps (which yield intuitive visual representations of the clusters), and partitioning around medoids (which circumvents the presence of data outliers). We set up our analysis in the context of the European banking sector, which has seen its regulators increasingly focused on examining the business models of supervised entities in the aftermath of the twin financial crises. In our empirical application, we find evidence of four distinct banking business models and further distinguish between banks with a clearly defined business model (core banks) and others (non‐core banks), as well as banks with a stable business model over time (persistent banks) and others (non‐persistent banks). Our proposed framework performs well under several robustness checks related with the sample, clustering methods, and variables used.     

BidPacket: trading bandwidth in public spaces

Smart devices such as smartphones and tablets are used extensively in public spaces for the transmission and reception of content in the form of text, photos and streaming videos. Since the bandwidth provided for wireless access is limited in public areas, it becomes an issue for users to gain access to the bandwidth they need at the right times. While an omniscient controller could assign bandwidth to each device on the basis of their needs and overall availability, imperfect information about the instantaneous state of the wifi access patterns and needs of users make for a very inefficient allocation of such bandwidth. This paper provides a solution for bandwidth allocation by creating a market among users of smart devices so that they can bid for extra bandwidth when they need it and sell it when they don’t. They do so by using a virtual currency that is conserved so that each device owner maximizes his own utility. This utility function is composed of both the benefit accrued from accessing bandwidth and the loss of the currency incurred in bidding for such bandwidth. Extensive simulations show that this market-based method outperforms an omniscient model when demand is uncertain, while minimizing bandwidth consumption.     

The effects of social media on brand attitude and WOM during a brand crisis: Evidences from the Barilla case

Brand crises endanger companies. Social media are a key platform where stakeholders elaborate and react to crises. This research explores whether social media audience and traditional mass media audience react differently to a brand crisis in terms of their (1) attitude towards the brand and (2) word-of-mouth (WOM). As to the brand attitude, we argue that stakeholders mainly exposed to the brand crisis via social media have a more negative reaction towards the brand compared to those who are principally exposed via traditional media. As to the behaviour, we posit that social media exposure intensifies WOM. By analysing the Barilla crisis, the findings suggest that the social media act as ‘multipliers’ of the reaction of stakeholders to a brand crisis.     

Collaboration,motivation, and the size of organizations

We present an analytical model of an organization that offers operational drivers of limits on team size. The model trades off benefits from collaborative problem solving against the disadvantages of diminishing motivation when groups get large. Collaboration is represented as parallel employee activity combined with frequent sharing of partial information, with a resulting superlinear performance increase over team size. Motivation is modeled by team members periodically setting an effort level either to contribute to the best of their ability or to “cruise”; at the minimum level not recognizable as shirking. Each individual decision is limited by bounded rationality based on team rewards, the time horizon of team interaction, and individual expectations about colleagues’ behavior. The decision collapses to a simple “barrier rule”;. Work hard when a certain “barrier percentage”; of team members work hard, and otherwise shirk. The influence of team size on this barrier percentage depends on the extent of benefits from collaboration: As long as performance increases quadratically with team size, the increased benefits resulting from collaboration exactly balance the temptation to shirk, with the barrier percentage approaching a fixed limit for large team sizes. As soon as the performance increase slows to anything less than quadratic, shirking eventually sets in and limits the possible size of the team. This implies that cooperation is sustainable in large organizational units, provided the problem‐solving processes used are powerful enough to ensure sufficient performance increases. Thus, effective problem‐solving methods are of double value, improving direct productivity and mitigating the social dilemma from team production. A manager should enlarge his or her organization up to the minimum of the limit set by the cooperation barrier and the exogenous performance limit.     

Pigouvian Taxes: A Strategic Approach

This paper analyzes the problem of designing mechanisms to implement efficient solutions in economies with externalities. We provide two simple mechanisms implementing the Pigouvian Social Choice Correspondence in environments in which coalitions can or cannot be formed.     

The Breakdown of Idiosyncratic Volatility Into Expected and Unexpected Components and Its Effects on Stock Returns in Brazil

Based on studies of idiosyncratic volatility developed in the recent literature, this study analyzes its relation with expected returns through the breakdown of idiosyncratic volatility in the Brazilian stock market and presents evidence of the importance of expected idiosyncratic volatility for asset pricing. We study the impact of the expected and unexpected components of idiosyncratic volatility on the returns of shares listed on the BOVESPA between 2004 and 2011. The results show a strong positive and significant relation between expected idiosyncratic volatility and returns. This evidence is highlighted when we use unexpected idiosyncratic volatility to control for unexpected returns. Additional robustness tests, controlling for size and momentum effects, also have positive and significant coefficients, corroborating previous findings.     

Testing the Empirical Relationship between Best Management Practice Adoption and Farm Profitability

Several "best management practices" (BMPs) aimed at reducing movement of nutrients, pesticides, and sediment into surface water resources have been developed and promoted by Extension and other agencies over the past several years. This study utilizes actual farm-level economic and BMP adoption data to rigorously analyze the relationship between BMP use and farm profitability. Results indicate that adoption of nutrient BMPs has a significant positive effect on net farm income (NFI) for wheat and corn, while herbicide BMP adoption, particularly use of BMPs related to the application of atrazine on corn, has a small (but statistically significant) negative impact on income. Adoption of soil conservation BMPs is not shown to have a statistically significant impact on farm income.