Anchor Points, Reference Points, and Counteroffers in Negotiations

Based on the theoretical assumptions that counteroffers are generated through an anchoring-and-adjustment process and that offers are perceived as gains or losses relative to a reference point, predictions were made of how, in a price negotiation, the size of counteroffers vary with proposed selling prices and reservation prices. The predictions were confirmed in two experiments. In Experiment 1, 64 undergraduate students of business administration playing the role of buyers of condominiums were presented proposed selling prices and asked to give a counteroffer which a hypothetical seller would accept or reject. A reference point was induced by telling subjects their reservation price. Before giving a counteroffer subjects were asked to indicate whether it was higher or lower than an arbitrary anchor point. In four different groups of subjects, high vs. low reference point was crossed with high vs. low anchor point. The results showed as expected that the counteroffers were higher for a high than for a low anchor point, and higher for a high reference point when the anchor point was perceived as a gain than for a low reference point when the anchor point was perceived as a loss. In Experiment 2 in which another 48 undergraduate students of business administration participated, the anchor points were the proposed selling prices and the reference point (reservation price) was manipulated by providing estimates of the market price. The results were as predicted, thus suggesting that the proposed selling prices operated as anchor points and that the estimated market prices affected the reservation prices (reference points) so that the selling prices and estimated market prices jointly affected the counteroffers.     

Laws of large numbers for Hayashi–Yoshida-type functionals

The main object in the statistical analysis of high-frequency financial data are sums of functionals of increments of stochastic processes, and statistical inference is based on the asymptotic behaviour of these sums as the mesh of the observation times tends to zero. Inspired by the famous Hayashi–Yoshida estimator for the quadratic covariation based on two asynchronously observed stochastic processes, we investigate similar sums for general functionals. We find that our results differ from corresponding results for synchronous observations, a case which has been well studied in the literature, and we observe that the asymptotic behaviour in the setting of asynchronous observations is not only determined by the nature of the functional, but also depends crucially on the asymptotics of the observation scheme. Several examples are discussed, including the case of \(f(x_{1},x_{2}) = |x_{1}|^{p_{1}} |x_{2}|^{p_{2}}\) which has various applications in empirical finance.

     

Dynamic portfolio optimization across hidden market regimes

Regime-based asset allocation has been shown to add value over rebalancing to static weights and, in particular, reduce potential drawdowns by reacting to changes in market conditions. The predominant approach in previous studies has been to specify in advance a static decision rule for changing the allocation based on the state of financial markets or the economy. In this article, model predictive control (MPC) is used to dynamically optimize a portfolio based on forecasts of the mean and variance of financial returns from a hidden Markov model with time-varying parameters. There are computational advantages to using MPC when estimates of future returns are updated every time a new observation becomes available, since the optimal control actions are reconsidered anyway. MPC outperforms a static decision rule for changing the allocation and realizes both a higher return and a significantly lower risk than a buy-and-hold investment in various major stock market indices. This is after accounting for transaction costs, with a one-day delay in the implementation of allocation changes, and with zero-interest cash as the only alternative to the stock indices. Imposing a trading penalty that reduces the number of trades is found to increase the robustness of the approach.     

IQ and corporate insiders’ decisions to time insider and outsider trading

We examine how corporate insiders’ cognitive ability (IQ) affects their decisions to time insider and outsider trading before abnormal stock price changes. Our analysis of archival data on male corporate insiders in Sweden shows they are less prone to time their insider selling and to sell in larger amounts, before abnormal stock price declines as IQ increases. We also find that insiders with a higher IQ are better at timing their outsider buying. Taken together, our results show that corporate insiders’ IQ affects their trading decisions differently, depending on whether they are trading in their insider or outsider stocks.     

Ambivalent statements in contingent valuation studies: inclusive response formats and giving respondents time to think

A recent concern in the valuation literature is the uncertainty respondents feel when posed with willingness-to-pay questions for environmental amenities in hypothetical market scenarios. Using a multiple-bounded discrete-choice format, the results indicate that respondents become less ambivalent when allowed considerable time to think about the valuation task before a response is elicited. In particular they tend to reduce the reported willingness to pay associated with low certainty of paying, hence resulting in more conservative welfare estimates. Implications for the application of environmental valuation techniques are discussed.     

Identifying root causes of inefficiencies in road haulage: case studies from Sweden,Switzerland and Germany

ABSTRACT

Road haulage operations in general, and distribution in particular, are inefficient. Given the societal importance of road haulage and the low efficiency of the sector, road hauliers need to improve their operations and systematically tackle inefficiencies. However, the real causes of these inefficiencies, the ‘root causes’, have not been sufficiently examined in previous studies. This paper expands on prior research by adapting existing models that can be used to identify the root causes of inefficiencies, and to enable systematic improvements in road transport operations. Our research is based on a lean approach and an adapted version of Ishikawa’s model. It is shown as a matrix based on transport processes and the Ishikawa categories to identify the root causes of inefficiencies in road haulage that influence performance. The adapted model was tested in three road haulage case studies. Our findings suggest that most efficiency problems appear in the actual transport execution.     

Do auditors constrain intertemporal income shifting in private companies?*

This study investigates the association between private company auditing and intertemporal income shifting. Using a large reduction in the Finnish corporate tax rate as a strong incentive for income shifting and financial statement data coupled with proprietary information from the tax authorities, we analyse accruals and cost stickiness of small private companies. Our results reveal significant differences in accrual income shifting between audited and unaudited companies, but only among companies that on average could anticipate the tax reduction the most. Further, we find auditors to restrict sticky selling, general, and administrative cost behaviour that we hypothesise is associated with illegal actions. Additional tests expose a nontrivial number of incorrectly unaudited companies which are the ones mostly associated with income shifting. Taken together, our study highlights the effects of audit exemption and the importance of enforcement while also suggesting that the audit process is value adding for the tax authorities.     

Keeping others in our mind or in our heart? Distribution games under cognitive load

It has recently been argued that giving is spontaneous while greed is calculated (Rand et al., in Nature 489:427–430, 2012). If greed is calculated we would expect that cognitive load, which is assumed to reduce the influence of cognitive processes, should affect greed. In this paper we study both charitable giving and the behavior of dictators under high and low cognitive load to test if greed is affected by the load. This is tested in three different dictator game experiments. In the dictator games we use both a give frame, where the dictators are given an amount that they may share with a partner, and a take frame, where dictators may take from an amount initially allocated to the partner. The results from all three experiments show that the behavioral effect in terms of allocated money of the induced load is small if at all existent. At the same time, follow-up questions indicate that the subjects’ decisions are more impulsive and less driven by their thoughts under cognitive load.