An evaluation of learning in the bilateral winner's curse

The Joint Effects of Hubris, Growth Aspirations, and Entrepreneurial Phases for Innovative Behavior

Innovation is often seen as essential for ventures to succeed. High business failure rates in entrepreneurship, however, suggest that innovations are frequently driven by entrepreneurs blinded by overconfidence. Thus, anticipating when and why entrepreneurs will be motivated to innovate is fundamental for entrepreneurial success. Using a large sample obtained from population surveys conducted in 77 countries, this study analyzes the variables that are significantly associated with innovative behaviors. The research tests a model proposing that the joint effects of hubris, growth aspirations, and an entrepreneur's level of entrepreneurial experience have a crucial impact on innovative endeavors. It finds that hubris is significantly related to entrepreneurs' growth aspirations and that ambition, in turn, is positively related to innovative behaviors. In addition, the study finds that both relationships are moderated by the level of entrepreneurial experience. These findings highlight the need to wise up amateur entrepreneurs before they embark on innovative endeavors.

Spirituality and Entrepreneurship: The Role of Magical Thinking in Future-Oriented Sensemaking

Drawing from a qualitative empirical study of Canadian entrepreneurs, we seek to understand the nature of entrepreneurial thinking. More specifically, we analyse entrepreneurs’ cognitive capacity to mitigate the risk inherent in an uncertain future and overcome low community expectations of entrepreneurial success. We introduce the notion of ‘magical thinking’, an emergent construct that refers to a cluster of beliefs that maintain the motivation and focus of entrepreneurs by transmuting agency from a rational-scientific context in which the entrepreneur imposes his or her will on the environment, to a spiritual context in which the entrepreneur perseveres by remaining true to trust in a wider cosmological belief system. We identify three key elements of magical thinking – finding one’s path, obtaining the answers and being at peace.

Default neglect in attempts at social influence

Current theories suggest that people understand how to exploit common biases to influence others. However, these predictions have received little empirical attention. We consider a widely studied bias with special policy relevance: the default effect, which is the tendency to choose whichever option is the status quo. We asked participants (including managers, law/business/medical students, and US adults) to nudge others toward selecting a target option by choosing whether to present that target option as the default. In contrast to theoretical predictions, we find that people often fail to understand and/or use defaults to influence others, i.e., they show "default neglect." First, in one-shot default-setting games, we find that only 50.8% of participants set the target option as the default across 11 samples (n = 2,844), consistent with people not systematically using defaults at all. Second, when participants have multiple opportunities for experience and feedback, they still do not systematically use defaults. Third, we investigate beliefs related to the default effect. People seem to anticipate some mechanisms that drive default effects, yet most people do not believe in the default effect on average, even in cases where they do use defaults. We discuss implications of default neglect for decision making, social influence, and evidence-based policy.

Recency, Records, and Recaps

Nash equilibrium takes optimization as a primitive, but suboptimal behavior can persist in simple stochastic decision problems. This has motivated the development of other equilibrium concepts such as cursed equilibrium and behavioral equilibrium. We experimentally study a simple adverse selection (or “lemons”) problem and find that learning models that heavily discount past information (i.e., display recency bias) explain patterns of behavior better than Nash, cursed, or behavioral equilibrium. Providing counterfactual information or a record of past outcomes does little to aid convergence to optimal strategies, but providing sample averages (“recaps”) gets individuals most of the way to optimality. Thus, recency effects are not solely due to limited memory but stem from some other form of cognitive constraints. Our results show the importance of going beyond static optimization and incorporating features of human learning into economic models used in both understanding phenomena and designing market institutions.

Myopic Biases in Strategic Social Prediction: Why Deadlines Put Everyone Under More Pressure Than Everyone Else

Five experiments document biases in the way people predict the outcomes of interdependent social situations. Participants predicted that situational constraints would restrain their own behavior more than it would the behavior of others, even in situations where everyone faced identical constraints. When anticipating the effects of deadlines on outcomes of negotiations, participants predicted that deadlines would hinder their performance more than it would hinder the performance of others. The results shed light on the psychological processes by which people predict the outcomes of and select strategies in strategic social interaction. They extend prior findings, such as people believing themselves to be below average on difficult tasks, to highly interdependent situations. Furthermore, the article shows both how focusing can account for these effects and also how perspective taking can reduce their biasing influence.

Cynicism in negotiation: When communication increases buyers’ skepticism

The economic literature on negotiation shows that strategic concerns can be a barrier to agreement, even when the buyer values the good more than the seller. Yet behavioral research demonstrates that human interaction can overcome these strategic concerns through communication. We show that there is also a downside of this human interaction: cynicism. Across two studies we focus on a seller-buyer interaction in which the buyer has uncertain knowledge about the goods for sale, but has a positive expected payoff from saying “yes” to the available transaction. Study 1 shows that most buyers accept offers made by computers, but that acceptance rates drop significantly when offers are made by human sellers who communicate directly with buyers. Study 2 clarifies that this effect results from allowing human sellers to communicate with buyers, and shows that such communication focuses the buyers’ attention on the seller’s trustworthiness. The mere situation of negotiated interaction increases buyers’ attention to the sellers’ self-serving motives and, consequently, buyers’ cynicism. Unaware of this downside of interaction, sellers actually prefer to have the opportunity to communicate with buyers.

Prior divergence: do researchers and participants share the same prior probability distributions?

Do participants bring their own priors to an experiment? If so, do they share the same priors as the researchers who design the experiment? In this article, we examine the extent to which self-generated priors conform to experimenters' expectations by explicitly asking participants to indicate their own priors in estimating the probability of a variety of events. We find in Study 1 that despite being instructed to follow a uniform distribution, participants appear to have used their own priors, which deviated from the given instructions. Using subjects' own priors allows us to account better for their responses rather than merely to test the accuracy of their estimates. Implications for the study of judgment and decision making are discussed.

Understanding Customer Reactions to Brokered Ultimatums: Applying Negotiation and Justice Theory

There has been little research examining customer reactions to brokered ultimatum game (BUG) contexts (i.e. exchanges in which 1 party offers an ultimatum price for a resource through an intermediary, and the ultimatum offer is accepted or rejected by the other party). In this study, the authors incorporated rational decision-making theory and justice theory to examine how customers' bids, recommendations, and repatronage behavior are affected by characteristics of BUG contexts (changing from an ultimatum to negotiation transaction, response timeliness, and offer acceptance or rejection). Results indicated that customers attempt to be economically efficient with their bidding behavior. However, negotiation structures, long waits for a response, and rejected bids create injustice perceptions (particularly informational and distributive injustice), negatively influencing customers' recommendations to others and their repatronage. The authors then discuss the practical and theoretical implications of their results.

Myopic Social Prediction and the Solo Comparison Effect

Four experiments explored the psychological processes by which people make comparative social judgments. Each participant chose how much money to wager on beating an opponent on either a difficult or a simple trivia quiz. Quiz difficulty did not influence the average person's probability of winning, yet participants bet more on a simple quiz than on a difficult quiz in the first 3 experiments. The results suggest that this effect results from a tendency to attend more closely to a focal actor than to others. Experiment 4 directly manipulated focusing; when participants were led to focus on the opponent instead of themselves, the effect was reversed. The discussion relates the results to other literatures including overly optimistic self-evaluation, false consensus, overconfidence, and social comparison.

Broadening behavioral decision research: multiple levels of cognitive processing

The area of behavioral decision research--specifically, the work on heuristics and biases--has had a tremendous influence on basic research, applied research, and application over the last 25 years. Its unique juxtaposition against economics has provided important benefits, but at the cost of leaving it disconnected from too much of psychology. This paper explores an expanded definition of behavioral decision research through the consideration of multiple levels of cognitive processing. Rather than being limited to how decision makers depart from optimality, we offer a broader analysis of how decision makers define the decision problem and link decisions to goals, as well as a more detailed focus on processes associated with implementing decisions.

Negotiator Risk: Sources of Uncertainty and the Impact of Reference Points on Negotiated Agreements

The settlement of a complex business negotiation inevitably requires the parties to assume substantial risks. Bargaining experiments, including those studying framing effects, have not. Two experiments examined the impact of reference points on negotiator tactics, concessions, and settlements in games with nondeterministic payoffs. In these experiments, subjects negotiated over chances to win a prize rather than directly over shares of the prize. In a reversal of the conventional findings with deterministic games, loss frame negotiators were more cooperative and more likely to settle. In the second experiment, subjects negotiated simultaneously over three linked lotteries, providing an opportunity to create value through risk spreading. In another reversal from deterministic games, loss frame negotiators created more integrative agreements. The impact of framing is clearly not uniform across all types of negotiations. It depends on the source of uncertainty confronting the parties. These experiments further establish and clarify the importance of variable risk preferences in understanding the negotiator framing effect. They also modify the conventional prescriptions given to negotiators and mediators regarding how to frame outcomes. Copyright 1998 Academic Press.