Understanding the framing effect: do affective responses to decision options mediate the influence of frame on choice?

Little research has examined how gain- and loss-framed options influence participants’ affective states. In the current paper, we present two studies that measure affective responses to framed options to identify a potential mediator of the relation between frame and choice. We found that participants reported more positive responses after reading gain-framed options that presented a certain outcome compared to loss-framed options that presented a certain outcome, consistent with the choice patterns of the framing effect. We also found that framing effects were mediated by affective evaluation of the options. We suggest future researchers continue to assess the influence of affective response on evaluating options and making decisions.     

Learning under supervision: an experimental study

In many market environments, for example in investment banking, salesforce management and others, workers and supervisors work closely as a team. Workers are paid a fixed salary and supervisors determine any raises, which are typically dependent on how well the organization does. In such scenarios, a supervisor who constantly offers suggestions can create a problem—typically a worker cannot ignore his supervisor’s advice, yet if such advice is wrong and is followed, it will only decrease firm profits. We conduct a laboratory experiment to address a question critical for such settings—does the relationship between advisor and worker interfere with the learning abilities of the worker? The answer is a resounding no. In fact, subjects who have a supervisor advising them and whose advice is costly to ignore actually learn better than those with an advisor whose advice can be ignored. An even more striking result is that advisees as well as advisors in both these conditions learn better than subjects with no advisors. Our result can be attributed to the presence of advice and has direct relevance to learning in many environments.     

Marketing with integrity: ethics and the service-dominant logic for marketing

This paper examines a tendency within existing marketing scholarship to compartmentalize ethical issues. It also shows how this tendency can cause ethical tensions and conflicts in marketing practice. The emerging service-dominant (S-D) logic for marketing, as proposed by Vargo and Lusch, is explored as an example of an approach to marketing that overcomes this tendency. The S-D logic is found to be a positive development for marketing ethics because it facilitates the seamless integration of ethical accountability into marketing decision-making. Specific recommendations are made for improving the ethical climate in marketing using marketing performance measurement theory and practice.

TOP INCOMES IN NEW ZEALAND 1921–2005: UNDERSTANDING THE EFFECTS OF MARGINAL TAX RATES, MIGRATION THREAT, AND THE MACROECONOMY

Using taxation statistics, we estimate the income share held by top income groups in New Zealand over the period 1921–2005. We find that the income share of the richest fell during the 1930s, rose again after the Second World War, and steadily declined from the late-1950s until the mid-1980s. From the mid-1980s until the mid-1990s, top income shares rose rapidly, particularly at the very top of the distribution. We present evidence that top marginal tax rates and changing top income shares in Australia and the United Kingdom may have contributed to fluctuations in the income share of the richest 1 percent. Past economic growth does not seem to have a strong effect on the income share of the top percentile group.     

Public spending and outcomes: Does governance matter?

This paper studies the links between public spending, governance, and outcomes. We examine the role of governance–measured by the level of corruption and the quality of bureaucracy–in determining the efficacy of public spending in improving human development outcomes. Our analysis contributes to our understanding of the relationship between public spending, governance and outcomes, and helps explain the surprising result that public spending often does not yield the expected improvement in outcomes. We show empirically that the differences in the efficacy of public spending can be largely explained by the quality of governance. Public health spending lowers child mortality rates more in countries with good governance. Similarly, public spending on primary education becomes more effective in increasing primary education attainment in countries with good governance. More generally, public spending has virtually no impact on health and education outcomes in poorly governed countries. These findings have important implications for enhancing the development effectiveness of public spending. The lessons are particularly relevant for developing countries, where public spending on education and health is relatively low, and the state of governance is often poor.     

The economics of biotechnology under ecosystem disruption

Economic analysis of chemical pesticide use has shown that the interactions between plants, pests, damage control technology and state of the ecosystem are important variables to be considered. Hence, a bio-economic model was developed for the assessment of Bt variety and pesticide-based control strategies of the cotton-bollworm in China. The model simulates plant growth, the dynamics of pest populations and of natural enemies. The model predictions are used as major inputs for a stochastic micro-level profit model of alternative control strategies.Results show that: (1) productivity effects of Bt varieties and pesticide use depend on the action of natural control agents, and (2) the profitability of damage control measures increases with the severity of ecosystem disruption. The findings highlight the importance of the choice of the counterfactual scenario in the assessment of the impact of agricultural biotechnology. Also, some doubts are raised whether the high benefits of Bt cotton varieties claimed by previous studies based on cross section comparisons are realistic.     

Fiscal-monetary Interactions: The Effect of Fiscal Restraint and Public Monitoring on Central Bank Credibility

This paper offers new insights into the interactions between private agents, the government, and a central bank, and their effect on the outcomes of monetary policy. In a simple game theoretic model we show that, unless there is public monitoring, impatient governments will be tempted to override or outmaneuver the central bank and create surprise inflation to boost output. This both undermines the government’s reputation for sound fiscal policies and reduces the central bank’s credibility. The result is not only higher and more volatile inflation but also sub-optimal output. More importantly, it is also shown that this is likely to occur even if the central banker is fully independent and the government is always patient. In contrast, if the public monitors sufficiently carefully, the central bank is never overridden and monetary policy can be credible even under an impatient government. We derive the general conditions under which each scenario occurs and then relate them to the developments in central banking over the past two decades, most notably to the trends towards greater independence, explicit inflation targeting, clearer communication and transparency. Interestingly, transparency is shown to reduce the variability of both inflation and output (by reducing the monitoring cost and making public monitoring more likely) which is in contrast to the usual transparency literature with a single policymaker which supposes a transparency-volatility trade-off.

Discovering your authentic leadership

The ongoing problems in business leadership over the past five years have underscored the need for a new kind of leader in the twenty-first century: the authentic leader. Author Bill George, a Harvard Business School professor and the former chairman and CEO of Medtronic, and his colleagues, conducted the largest leadership development study ever undertaken. They interviewed 125 business leaders from different racial, religious, national, and socioeconomic backgrounds to understand how leaders become and remain authentic. Their interviews showed that you do not have to be born with any particular characteristics or traits to lead. You also do not have to be at the top of your organization. Anyone can learn to be an authentic leader. The journey begins with leaders understanding their life stories. Authentic leaders frame their stories in ways that allow them to see themselves not as passive observers but as individuals who learn from their experiences. These leaders make time to examine their experiences and to reflect on them, and in doing so they grow as individuals and as leaders. Authentic leaders also work hard at developing self-awareness through persistent and often courageous self-exploration. Denial can be the greatest hurdle that leaders face in becoming self-aware, but authentic leaders ask for, and listen to, honest feedback. They also use formal and informal support networks to help them stay grounded and lead integrated lives. The authors argue that achieving business results over a sustained period of time is the ultimate mark of authentic leadership. It may be possible to drive short-term outcomes without being authentic, but authentic leadership is the only way to create long-term results.     

Analyst Activity and Firm Value: Evidence from the REIT Sector

This paper is the first to examine (1) properties of analyst forecasts and (2) effects of analyst following on firm value for all REITs on CRSP, Compustat and I/B/E/S. Our results suggest that REITs operate in an information environment that has changed over time. We find that for periods when the REIT industry was either in the developmental stage (pre-1992), or after other structural changes in the industry (post-2000), more analysts cover REITs and forecasts are more accurate and less biased. Further, we find that mortgage REITs are more transparent than other REIT structures and exhibit properties of analyst behavior that are different from other types of REITs. Our investigation into the effect of analyst coverage on REIT value suggests that analyst coverage increases REIT value (as measured by Tobin’s q) and that the causality does not run the opposite way.