Group diversity and decision quality: Amplification and attenuation of the framing effect

Do groups make better judgments and decisions than individuals? We tested the hypothesis that the advantage of groups over individuals in decision-making depends on the group composition. Our study used susceptibility to the framing effect as a measure of decision quality. Individuals were assigned to one of two perspectives on a choice problem. The individuals were asked to indicate their individual preference between a risky option and a risk-free option. Next, they were asked to consider the same (or a related) choice problem as a group. Homogeneous groups were composed of similarly framed individuals, while the heterogeneous ones were composed of differently framed individuals. In comparison to individual preferences, the homogeneous groups’ preferences were polarized, and thus the framing effect was amplified; in contrast, the heterogeneous groups’ preferences converged, and thus the framing effect was reduced to zero. The findings are discussed with regard to group polarization, the effects of heterogeneity on group performance, and the Delphi forecasting method.     

Factor market rivalry and interindustry competitive dynamics

We study competitive dynamics by using 10 years of data from the biotech industry on patent infringement lawsuits because they capture offensive actions and defensive responses. Results suggest that larger patent portfolios, long‐term partnerships, and short‐term agreements lead to factor market rivalry. Specifically, long‐term research partnerships are associated with lower proclivity and vulnerability to attack, while short‐term licensing and marketing agreements with increased proclivity and vulnerability to attack. Lastly, although nonbiotech companies attack biotech firms, the proclivity of the latter to launch cross‐industry attacks is not significant. We discuss how the results contribute to competitive dynamics research and theory.     

Technical note:: Hybrid corn: Its adoption revisited

The analysis presented is for the adoption of hybrid corn. Among the three functional relationships that are tried the log logistic performs best in terms of explanation (R²) and serial correlation before adjusting for it. After adjusting for the serial correlation using the Cochrane Orcutt procedure the differences between the three functional forms practically vanish. The adoption parameter of the log logistic is best explained by economic variables among which the total area of corn in the state, which stands for both the importance in the economy and economies of scale of extension services, is outstanding.     

Junk-food,home cooking,physical activity and obesity: The effect of the fat tax and the thin subsidy

In an effort to reduce the growing prevalence of obesity, a tax on junk-foods, known as ‘fat tax’, has been proposed, the revenue from which could be used to finance a ‘thin subsidy’ for healthy foods or exercising equipment. The present paper addresses the fat tax and thin subsidy within a food-intake rational-choice model. Assuming that healthy meals are cooked at home with purchased ingredients and time input, the paper examines the effects on obesity of a tax on junk-food meals and a subsidy to cooking ingredients, distinguishing between a weight-conscious and a non-weight conscious individual, and between a weight-conscious individual who is physically active and physically inactive. The results show that for a non-weight conscious individual a fat tax will unambiguously reduce obesity, whereas a thin subsidy may increase obesity. However, for a weight-conscious individual, particularly one who is physically active, even a fat tax may increase obesity, as it may reduce not just the consumption of junk-food, but also the time devoted to physical activity. The paper explores conditions under which obesity will rise, fall, or remain intact following the introduction of a fat tax or a thin subsidy.     

Dynamic Volume-Return Relation of Individual Stocks

We examine the dynamic relation between return and volume ofindividual stocks. Using a simple model in which investors tradeto share risk or speculate on private information, we show thatreturns generated by risk-sharing trades tend to reverse themselves,while returns generated by speculative trades tend to continuethemselves. We test this theoretical prediction by analyzingthe relation between daily volume and first-order return autocorrelationfor individual stocks listed on the NYSE and AMEX. We find thatthe cross-sectional variation in the relation between volumeand return autocorrelation is related to the extent of informedtrading in a manner consistent with the theoretical prediction.     

Revenge, Tax Informing, and the Optimal Bounty

A common belief is that the IRS pays tax informants 10% of whatever their tips produce in revenue. Actually, the bounty rate is even lower, averaging, in recent years, less than 2% of the amount of taxes and fines recovered. Why is it that the IRS is so tightfisted in rewarding informants who help recover taxes that otherwise would not have been recovered? The present paper approaches this question from an economic perspective, introducing a simple model of the informing decision, the implications of which are incorporated into the tax administration's problem of selecting a bounty rate, as well as a probability of convicting informed‐upon evaders, that maximize its expected net revenues from tax informing. The paper shows that a revenue‐maximizing tax administration would set its bounty rate lower and its prosecution efforts higher, the stronger, at the margin, informants' desire to get revenge on former parties with whom they have quarreled. While the IRS may be guided by ethical and moral considerations in designing its bounty scheme, it nevertheless behaves as if it were cynically exploiting informants' emotional drives, cutting down on their fair share in the recovered amounts to help finance its efforts in prosecuting informed‐upon evaders.     

Trademark infringement and optimal monitoring policy

The paper addresses a trademark infringer who seeks to capitalize on the reputation of a trademark owner, sells an identical product under a trademark which is confusingly similar to that of the owner, charges the same price and competes with him in the same market. We show that the welfare-maximizing monitoring intensity is zero, hence the government is not likely to engage in monitoring infringement. Recognizing this, the trademark owner may consider monitoring the market himself, discovering, however, that this is worth his while only if the penalty for infringement, which he fully collects, is sufficiently high. Given the entry condition, an increase in the penalty may either raise or lower the optimal monitoring intensity. In the former case it will counter-intuitively increase the infringer's expected profit, apparently because a higher penalty will also lead to a raise in price. While monitoring enables the trademark owner to maintain a positive profit level, it reduces social welfare. The government may intervene to eliminate the private incentive for monitoring through taxing the collected penalty.