New product decision making: How chance and size of loss influence what marketing managers see and do

This article empirically examines, in a new‐product decision context, the relationships among risk propensity, perceived risk, and risky choice decisions, when risk is operationalized as the chance of loss and the size of loss. The results indicate that perceptions of chance of loss directly influence choice among alternatives possessing different chances of loss and gain, whereas risk propensity directly influences choice among alternatives that differ in their size of loss and gain. The findings extend previous research by identifying dimension‐specific effects (a) between who the decision maker is and the size of an investment's potential loss, and (b) between what the decision maker sees and the chance that an investment will experience a loss. These results not only contribute to theory, but also provide marketing managers with guidance for their risky choice decisions. The composition of a new product's risk has implications for the decisions marketing managers make, for the placement of managers in risk‐sensitive positions, and for the presentation of information to individuals with oversight responsibility for the firm's product strategy decisions. © 2002 Wiley Periodicals, Inc.     

The effect of category label specificity on consumer choice

The current research demonstrates the category specificity effect, whereby an individual’s choice of options belonging to different categories depends on whether the options are categorized in a specific or abstract manner. In particular, when categories do not contain labels that specifically convey category knowledge, individuals tend to view the assortment as having more varied alternatives, leading to greater variety-seeking. Three laboratory studies employing the context of food menu selections were conducted to test our hypotheses. Study 1 and Study 2 reveal that, given the identical assortment of dishes, individuals are likely to order a greater variety of dishes when the menu contains no category labels or abstract category labels, as opposed to when it contains specific category labels. Furthermore, the use of abstract category labels increases the number of dishes individuals order. We further show that this category specificity effect on choice is mediated by the enhanced perception of variety offered in the menu. Study 3 demonstrates that the effect of category specificity is moderated by an individual’s familiarity with the food category.     

Entrepreneurship: skills and financing

This article analyzes an occupational choice model with risk-averse agents who are heterogeneous in terms of skills and wealth in a setting with financial frictions. We show that high- and middle-wealth individuals endowed with a balanced portfolio of skills upgrade their skills so that the resulting portfolio of skills is more balanced and choose entrepreneurship. In contrast, middle-wealth individuals endowed with an unbalanced portfolio of skills and low-wealth individuals specialize in the skill in which they have an absolute advantage and choose paid employment. Deeper financial development, a more balanced portfolio of skills, lower entrepreneurial risk, and a higher liquidation value for projects result in more entrepreneurship and higher welfare, while wealth redistributions and financial subsidies to entrepreneurs have an ambiguous effect on welfare.     

How to hedge if the payment date is uncertain?

This paper investigates how firms should hedge price risk when payment dates are uncertain. We derive variance-minimizing strategies and show that the instrument choice is essential for this problem, similar to the choice between a strip and a stack hedge. The first setting concentrates on futures hedges, whereas the second allows for nonlinear derivatives. In both settings, firms should take positions in derivatives with different maturities simultaneously. We present an empirical analysis for commodities and exchange rates, showing that in both settings the optimal strategy clearly outperforms the commonly used heuristic strategies which consider only one hedging instrument at a time.     

Entrepreneurship as a utility maximizing response

Research on entrepreneurship has investigated what entrepreneurs do, what happens when they act as entrepreneurs, and why they act as entrepreneurs. This paper contributes to the latter investigation, and specifically asks why some people choose to be entrepreneurs, while others choose to be employees. Responding to prior literature recognizing the lack of a coherent theory of entrepreneurship and calling for a rigorous examination of the decision to become an entrepreneur, this paper presents an economic model of the career decision. We postulate that the individual chooses an entrepreneurial career path, or a career as an employee, or some combination of the two, according to which career path promises maximal utility (or psychic satisfaction).We assume that the individual's utility from any particular occupation, whether self-employed or employed, depends on income (which depends in turn on ability), as well as working conditions such as decision-making control, risk exposure, work effort required, and other working conditions (net perquisites) associated with that occupation. Individuals will exhibit either preference or aversion towards each of the specified working conditions, and it is the degree of that preference or aversion, in conjunction with the quantum of each working condition, which determines the total utility that the individual will derive from each particular occupation.We show that all employees will have an incentive to be self-employed (if they could assemble the same resources as their employer). Also, the greater their managerial and entrepreneurial ability, the greater will be their incentive to be self-employed, other things being equal. Next, we show that a more positive attitude to work (i.e., a lesser aversion to work effort required) provides a greater incentive to be self-employed.The individual's degree of risk aversion also influences the choice to be an entrepreneur. The more tolerant one is of risk bearing, the greater the incentive to be self-employed. Similarly, the greater the preference for independence, or decision-making control, the greater the incentive to be self-employed. Finally, it is noted that perquisites (and avoidance of irksome elements) can potentially be controlled to a greater degree when self-employed, so the individual will consider the differences in these other working conditions when contemplating a career choice.But it is the sum of the utility and disutility from these sources which determines the career decision. Thus, we demonstrate that positive attitudes toward risk, work, and independence are neither necessary nor sufficient conditions for a person to want to be an entrepreneur. Entrepreneurial abilities and attitudes are desirable in employment situations, therefore, an employer may choose to bribe an entrepreneurial individual to be an employee by offering more income and greater independence, for example.We demonstrate that firms recruiting employees, or venture capitalists considering funding an entrepreneur, should in their own best interests investigate the person's attitudes toward income, risk, work, and independence as well as their abilities, as these attitudes underpin the person's worth as an employee and their incentive to be self-employed. Management educators should design programs which enhance the entrepreneurial abilities and attitudes of individuals, and the individuals themselves should consider their `attitudinal' make-up before committing to entrepreneurship.     

Service characteristics as moderators of the entry mode choice: empirical evidence in the hotel industry

Although a considerable amount of research has explored the entry mode choice, results regarding the direct influence of some variables on the entry mode choice evince a lack of a clear consistency. By introducing the moderator effect of the nature of the services being provided by the firm, we explain some of these inconclusive results. We use a comprehensive database on the Spanish hotel industry which covers nearly all the operations carried out by the majority of Spanish hotel chains up to 2011. We found that both intangibility and complexity of the services offered by the hotel moderate the relationship between environmental uncertainties and entry mode choice by increasing the propensity to use greater commitment entry modes when faced with conditions of country risk and cultural uncertainty.     

Marketing the use of headgear in high contact sports

High contact sports have gained popularity among consumers, who often seek thrills and the feeling of invincibility by risking their well-being. One major health risk associated with these sports is head injuries, including trauma, concussion, and sleep disruption. In this research, we investigate the effect of consumers’ product choice difficulty on their health risk assessments. We illustrate a novel mediating route by documenting how and when choice maximization can help consumers make the optimal choice when faced with the many products available in the market. To aid their decisions, consumers require communication about the health benefits of the product (first-stage boundary condition) but not at the expense of reducing their game-playing enjoyment (second-stage boundary condition). The paper concludes with contributions to and implications for theory and practice and a research agenda to guide future inquiries in this under-researched area.     

An investigation of hindsight bias in nascent venture activity

We posit that individuals who are actively engaged in activities to develop their own venture will exhibit hindsight bias when recalling their startup experiences. We observe that those who fail to develop their startup activity into an operating business demonstrate substantial hindsight bias concerning the probability of venture formation. In particular, the recalled probability of success, reported after their decision to quit, is lower than the probability of success solicited during the nascent process. We argue that the systematic distortion of the past has important implications for individuals involved in the venturing process. Specifically, we suggest that these individuals are at risk of overestimating their chances of success when starting future nascent activity if they do not correct for their optimistic tendencies. The evidence from this study suggests it is important to recognize that what nascent entrepreneurs believe they experienced, and what they actually experienced, may not be equivalent.     

RISK‐MINIMIZATION FOR LIFE INSURANCE LIABILITIES WITH DEPENDENT MORTALITY RISK

In this paper, we study the pricing and hedging of typical life insurance liabilities for an insurance portfolio with dependent mortality risk by means of the well‐known risk‐minimization approach. As the insurance portfolio consists of individuals of different age cohorts in order to capture the cross‐generational dependency structure of the portfolio, we introduce affine models for the mortality intensities based on Gaussian random fields that deliver analytically tractable results. We also provide specific examples consistent with historical mortality data and correlation structures. Main novelties of this work are the explicit computations of risk‐minimizing strategies for life insurance liabilities written on an insurance portfolio composed of primary financial assets (a risky asset and a money market account) and a family of longevity bonds, and the simultaneous consideration of different age cohorts.     

Heuristics in Mutual Fund Consumers' Willingness‐to‐Invest: An Experimental Approach

This paper improves the understanding of heuristics in the choice of mutual funds. We analyze the effect of price‐quality relationship and anchors as heuristics on the evaluation of the willingness‐to‐invest. We perform two studies with graduate students who possess a medium–high level of financial literacy in Chile. In the first study, we find that willingness‐to‐invest increases (decreases) when subjects observe (do not observe) in the market a positive relationship between expense ratios (price) and service quality. In the second study, in the presence of an anchor, the reference price obtained by individuals from the market information loses relevance and the anchor effect predominates. Our results confirm that participants, as consumers of financial services, apply heuristics as groundwork for their investment decisions. These heuristics as a decision making process are useful but do not always lead to the choice of the lowest cost alternative with the highest possible service quality.     

When goliaths win and davids lose: The moderating role of perceived risk in brand biography effects

Brand biographies trace a brand's evolution to position it as an underdog (i.e., passion and determination that lead to success despite limited resources) or a topdog (i.e., success based on abundance of resources) brand. This study examines how consumers’ risk perceptions associated with brand choice influence brand biography effects. It demonstrates that when perceived risk associated with brand choice is low, consumers process brand biographies narratively, experience greater narrative transportation into underdog (vs. topdog) brand biographies, and evaluate the underdog brand more favorably. When perceived risk associated with brand choice is high, consumers respond more positively to topdog (vs. underdog) brand biographies, due to topdog brands’ greater perceived ability to reduce risk. The topdog effect observed at higher levels of perceived risk reverses, however, when consumers have the opportunity to process the brand biography before receiving high risk information, as this allows for narrative transportation into the brand biography. This study contributes to research on moderators of brand biography effects and suggests that perceived risk should play a role in marketers’ decision to emphasize underdog or topdog characteristics in brand biographies.     

Homogeneity and heterogeneity in stochastic models of brand choice behavior

Heterogeneity of consumers is one of the cornerstones of empirical findings and theories in marketing. It serves, for example, as the foundation for such areas as market segmentation and product differentiation. This paper attempts to trace and clarify the evolution over the last twenty years of the homogeneity assumptions in the area of stochastic models of brand choice behavior. In analyzing individual choice behavior by means of stochastic models, all individuals were often assumed to possess the same set of transition probabilities or follow the same stochastic process. However, empirical studies at the individual level indicate that individuals are actually non-homogeneous in those probabilities and processes. In this article we provide an analytical proof that if the behavior of individuals is specified to be homogeneous when it is not, wrong inferences about the type of stochastic process individuals follow and about the expected behavior of the total population will be drawn. Ways to remedy these problems by allowing for heterogeneity are reviewed. The implications of heterogeneity and our findings in the various application areas which utilize stochastic choice models are examined.     

Compromise and attraction effects in food choice

Food choices are being implicated as a key driver in the rising rates of obesity, as well as associated with other health problems that impact both individuals and society as a whole (Cawley and Meyerhoefer). Calorie listings, whether provided on menus or packaged goods, increase consumer's awareness of the calories in potential food choices and, as a result, make consumers more likely to evaluate a product relative to others in the choice set based on this attribute (e.g. choosing a higher or lower calorie option). In this research, we explore whether the provision of calorie information, when presented in the context of other food options, will result in (1) compromise effects, whereby individuals select intermediate (or middle) options in a choice set, and (2) attraction effects, whereby individuals gravitate towards items that are similar to others but also dominate these items in the choice set. In two experimental studies we find evidence for the compromise effect and the attraction effect. These findings extend work demonstrating that the context in which food decisions occur can impact choice, and builds on existing knowledge regarding the consequences of providing calorie information for food items. Although most work has shown that making calories salient has a beneficial impact on the accuracy of consumer calorie estimates and food choice, in this work we show that the compromise and attraction effects – two well‐established findings in decision‐making literature – can actually shift consumers to either higher or lower calorie options. This carries important implications for consumers making choices in information‐rich choice environments.     

The effect of aging on entrepreneurial behavior

Empirical evidence shows that younger individuals are more likely to start a new firm than older ones. As a result, the age distribution of a population may be important for the rate of new firm creation. Building upon Becker's theory of time allocation, we present a model in which individuals select a career path according to the dynamic interplay of age, wealth and risk aversion. Our analysis complements existing literature on the motivations of entrepreneurial behavior and discusses the potential implications of age for individuals' employment status choices.     

The Effect of Set Composition on Stopping Behavior in a Finite Search Among Assortments

The process by which individuals make sequential searches among choice sets prior to choosing a single item is examined. Economic search theory prescribes that such searches should be made by focusing on expectations of the maximum utility likely to be found in each set, ignoring external features of sets such as their complexity. Empirical research in psychology, however, suggests that search behavior may be highly influenced by set features, most notably a tendency to defer choices from sets that are perceived as difficult to evaluate. An experimental investigation of choice-set search reveals that stopping decisions are indeed influenced by normatively irrelevant external features of sets, but not in a way that is completely consistent with previous work on context effects. In particular, we find that individuals are likely to stop sooner in search when encountering larger versus smaller choice sets (holding their maximum utilities constant), and decisions to stop are unaffected by two traditional measures of difficulty: whether a choice set lacks dominant options and the similarity of overall utilities of options in a set. Implications of the work for the ability to generalize findings in static choice to dynamic task settings are explored.     

Gender Issues Impact the Role of the Moral Agent in a Rapidly Developing Economic Zone of the People's Republic of China

ABSTRACT

This research shows female financial sector employees acting as moral agents demonstrate high levels of adversity to risk compared to their male counterparts, reducing the likelihood that they would report unethical work practices. The degree of risk and its effect on moral choice is dependent on the interaction of age, education and employment status. Attitudes towards supervisors, and the existence of instrumental work environments were also seen to influence moral choice, depending on gender.     

诉讼风险、审计师选择与盈余质量

本文分析诉讼风险对企业审计师选择决策的影响及其经济后果.检验发现,面临更高诉讼风险的企业,选择高质量审计师的概率越低.同时,高诉讼风险企业披露的盈余信息质量显著更差.但是,如果高诉讼风险企业选择了高质量审计师,那么诉讼风险对盈余质量不再具有显著影响.这表明,高质量审计师能有效缓解诉讼风险对盈余质量的消极效应,提升高诉讼企业的信息披露质量.上述结论为诉讼风险的经济后果提供了新的解释,也进一步丰富和拓展了有关审计师选择决策影响因素的研究.     

Statistical manipulability of social choice functions

We consider the proportion of profiles at which an anonymous neutral social choice function cannot be manipulated to any coalition's advantage. We fix the number of alternatives and consider the limit as the number of individuals goes to infinity, and assume that the limit of the fraction of all profiles in the domain is 1. We show that there is a continuous function on “profile vectors’ which gives the maximum probability of strategy-proofness, and that this is strictly between 0 and 1 for three alternatives. We also analyze a number of common social choice functions along these lines.