SPENDING WISELY? HOW RESOURCES AFFECT KNOWLEDGE PRODUCTION IN UNIVERSITIES

Every year billions of dollars are spent on research grants to produce new knowledge in universities. However, as grants may also affect other research funding, the effects of financial resources on knowledge production remain unclear. To uncover how financial resources affect knowledge production, we study the effects of research spending itself. Utilizing the legal constraints on university spending from an endowment we develop an instrumental variables approach. Our approach instruments for university research spending with time‐series variation in stock prices interacted with cross‐sectional variation in initial endowment market values for research universities in the United States. Our analysis reveals that research spending has a substantial positive effect on the number of papers produced, but not their impact. We also demonstrate that research spending effects are quite similar at private and public universities. (JEL H5, I2, O3)     

When being overpaid makes me feel good about myself: It depends on how the other feels

The present research examined whether the emotions of others (i.e., disappointment versus happiness with respect to a received outcome) influence own self-esteem when being overpaid. Results from two experiments demonstrated that participants reported higher performance self-esteem when the other expressed happiness rather than disappointment. This effect was only found in the condition where one was overpaid relative to the condition where one did not yet know one’s own outcome. In the second experimental study we further found that this interaction between the emotion of the other and the distribution situation only emerged among participants low (relative to high) in personal need for structure. Implications with respect to the relationship between overpayment and self-esteem and the interpersonal effects of emotions in this process are discussed.     

The communication of anger and disappointment helps to establish cooperation through indirect reciprocity

Indirect reciprocity is cooperation through reputation: third parties cooperate with those known to cooperate and defect against those known to defect. Defection, then, can have the unjust motive of greed or the just motive of retaliation. To establish cooperation, observers should distinguish both motives for defection and respond more cooperatively to the latter. We propose that the expression of emotions may facilitate this inferential process. Indeed, in two laboratory studies participants inferred that defection out of anger or disappointment was a just response to a defector and they responded more cooperatively than when no emotion was communicated. Moreover, participants inferred that defectors who evoked disappointment instead of anger had a relatively positive reputation. We conclude that emotions help establish cooperation through indirect reciprocity.     

Normlessness,Anomie, and the Emotions

In Suicide, Durkheim described two qualitatively different experiences of normative anomie, each with a distinct affective basis: an intentional, if not ruthless, disdain for society's normative order; and an unintentional disregard for, or confusion about, norms or rules of conduct. We generalize Durkheim's classification of the socioaffective aspects of anomic suicide, and present two theoretical models of normlessness‐anomie and the emotions. These models posit that intentional anomie involves the primary emotions anger, disgust, and joy‐happiness; these emotions can combine to form the secondary emotions contempt, pride, and derisiveness. Unintentional, passive anomie rather involves the emotions surprise, fear, and sadness; these can combine to form the secondary emotions disappointment, shame, and alarm. We additionally hypothesize that each kind of anomie has distinct potential behavioral consequences: intentional anomie can result in immorality, shamelessness, acquisitiveness, and premeditated homicidality; unintentional anomie, in depression, confusion, uncertainty, unpremeditated homicidality, and suicidality.     

Emotional crisis communication

Organizational crises are usually highly emotional experiences for both organizations and stakeholders. Hence, crisis situations often result in emotionally charged communication between the two parties. Despite the attention of organizations and scholars to the emotions of stakeholders during crises, little is known about the effects of the emotions communicated by organizations on corporate reputations. Through the use of vignettes, this experiment reveals that besides crisis-response strategy (diminish vs. rebuild), the communicated emotion (i.e., shame and regret) has a positive effect on corporate reputation. Mediation analyses showed that this effect of communicated emotion could be explained by the public's (negative) affective as well as cognitive responses (i.e., account acceptance). This study confirms that emotional signals embedded in crisis responses may affect corporate reputations by reducing feelings of anger and by increasing the acceptance of the organizational message. In doing so, this study provides a starting point for further exploration of the effectiveness of other emotions in crisis communication.     

An investigation of the endowment effect using a factorial design

The endowment effect is interpreted as evidence that we may ‘over value’ objects we already own. In this study we introduce a novel approach to investigating the endowment effect, the factorial survey design, which enables manipulation of variables potentially influencing the endowment effect. We consider the value and uniqueness of the possession, whether it is a gift from a close friend and whether the trade is with a stranger. We find a higher endowment effect for possessions received as gifts from a close friend and this effect is entirely due to responses from women. Furthermore, we find significantly higher endowment effects for valuable possessions. Our results suggest there is ample scope for broadening the range of methods applied to this area of economic research.     

Socio‐Emotional Context and Adolescents' Decision Making: The Experience of Regret and Relief After Social Comparison

Many studies indicate that adolescents are hypersensitive to rewards in salient socio‐emotional contexts. However, little is known about adolescents' sensitivity to complex negative emotions. To study the development of the ability to experience regret and relief, children, adolescents, and young adults performed a gambling task in a socio‐emotional context of competition, in which they were informed that their outcome would be compared with that of a competitor. The context of competition impacted the feelings of regret and relief in adolescents. When adolescents experienced an initial negative outcome, their feeling of relief was reinforced. However, they did not seem to experience regret in the social context of competition. These results provide a possible explanation for adolescents' enhanced risk seeking.     

The triumph of hope over disappointment: A note on the utility value of good health expectations

In this paper, we present and test the empirical implications of competing theories about how expectations of outcomes affect utility. In the first utility formulation, which is consistent with particular interpretations of disappointment, prospect theory and regret theory, individuals receive negative utility from outcomes that were worse than expected. This directly implies that expectations themselves enter utility negatively. The second utility formulation incorporates anticipatory savoring, where positive expectations about the future directly lead to more utility today. We test which of these formulations best explains actual connections between health and welfare over time, using data from the Household Income and Labour Dynamics in Australia survey. Estimated coefficients from fixed-effects ordered logit models support a strong positive utility impact of positive expectations: expecting good health in the future increases happiness now. Our results are one argument for benevolent health care providers to allow individuals to maintain unrealistically positive expectations about the future.     

Terror and trade of individual investors

A great number of psychological studies document the influence of emotions on individuals’ decision-making processes. This paper contributes to this literature by analyzing the possible impact of terrorism on financial trade by individual investors. Using account data for over 3000 households obtained from a large Israeli bank, we look into reactions of common stock investments to terrorist incidents in the years 1998–2002. The empirical analysis indicates that terror has a significant adverse effect on actual trade, possibly limiting the scope of risk-sharing available through traded securities. Several psychological explanations for investors’ reluctance to trade are provided. Amongst them are the increase in public fear (resulting in pessimistic risk estimates and risk averse choices); the sense of ambiguity caused by terror; repercussions of anxiety and depression disorders; a desire to avoid future regret. Our results add to the recent literature documenting the harmful effects terrorist acts have on various facets of the economy.     

DISAPPOINTMENT AVERSION AND SOCIAL COMPARISONS IN A REAL‐EFFORT COMPETITION

We present an experiment to investigate the source of disappointment aversion in a sequential real‐effort competition. Specifically, we study the contribution of social comparison effects to the disappointment aversion previously identified in a two‐person real‐effort competition (Gill, D., and V. Prowse. “A Structural Analysis of Disappointment Aversion in a Real Effort Competition.” American Economic Review, 102, 2012, 469–503). To do this we compare “social” and “asocial” versions of the Gill and Prowse experiment, where the latter treatment removes the scope for social comparisons. If disappointment aversion simply reflects an asymmetric evaluation of losses and gains we would expect it to survive in our asocial treatment. Alternatively, if losing to or winning against another person affects the evaluation of losses/gains, as we show would be theoretically the case under asymmetric inequality aversion, we would expect treatment differences. We find behavior in social and asocial treatments to be similar, suggesting that social comparisons have little impact in this setting. Unlike in Gill and Prowse we do not find evidence of disappointment aversion. (JEL C91, D12, D81, D84)     

HORIZONTAL MERGERS IN THE PRESENCE OF CAPACITY CONSTRAINTS

We examine a merger between two competitors in a Bertrand‐Edgeworth model. We find that the effects of merger depend on the tightness of capacity constraints. The combination of two firms has no price effect if and only if the capacity constraints of all firms are binding both before and after the merger. However, a merger may turn a binding capacity constraint into a slack one, which results in higher prices. In an industry where excess capacity drives the premerger prices of all firms to the marginal cost, a merger may cause prices to rise even though aggregate capacity remains constant. (JEL L13, L40)     

Saving regret and procrastination

In countries, where a substantial proportion of retirement income rests on savings, there is much concern that a sizeable fraction of the population reaches retirement with insufficient financial resources. We define saving regret as the wish in hindsight to have saved more earlier in life. We measured saving regret and possible determinants in a survey of U.S. households in which respondents were aged 60–79. We find high levels of saving regret, affirmed by some 58%. Saving regret exhibits significant and plausible correlations with personal characteristics and wealth: Married, older, healthier and wealthier respondents are less likely to report saving regret, suggesting the measure’s validity. We find only weak evidence for correlations between saving regret and measures of procrastination: persons with traits associated with procrastination express saving regret about as often as those without those traits.     

THE GENERALIZED ALCHIAN–ALLEN THEOREM: A SLUTSKY EQUATION FOR RELATIVE DEMAND

We generalize the Alchian–Allen theorem so as to account for income and endowment effects and provide two versions of a Generalized Alchian–Allen theorem: one for a unit cost component and one for a proportional cost component. Both versions provide a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect and an income‐endowment effect—and may thus be regarded as extensions of the familiar Slutsky equation for relative demand. Finally, we apply our results to the choice of real estates and to parental time allocation decisions, the latter providing implications for child care policies. (JEL D11, H21, J22, R21)     

Regret aversion and the reluctance to exchange lottery tickets

The current research finds that people are willing to forego a direct material gain, if that protects them from future regrets. In two experiments participants endowed with a lottery ticket were offered to exchange their ticket for another ticket from the same lottery. Even though they could receive a bonus for exchanging, many participants chose not to do so. Experiment 1 finds that a manipulation that prevented the anticipation of regret by offering the ticket in a sealed envelope made more participants exchange their ticket. Experiment 2 finds that an increased potential of regret over not-exchanging made more participants exchange as well. In both experiments the effect of the manipulation on choices is mediated by anticipated regret. The experiments show that people are willing to forego a material gain to prevent future regrets and that the reluctance to exchange lottery tickets is (partly) caused by regret aversion.     

Anticipated Regret,Risk Perception,or Both: Which is Most Likely Responsible for Our Intention to Gamble?

The current study investigated whether risk aversion or regret aversion could be related to a lower intention to gamble, and whether the type of gambling was a moderator of this relationship. The study took place in Macau, often called “the Las Vegas of East Asia.” A total of 373 Macau residents completed a questionnaire survey dealing with thirteen types of gambling. The results showed that risk perception and anticipated regret had a significant negative effect on the intention to gamble. This negative effect was domain-specific, varying with the type of gambling. Our findings indicated that neither risk aversion nor regret aversion can uniquely explain an individual’s risk-taking tendency consistently. Instead, which factor plays a greater role in lowering the intention to gamble—regret aversion, risk aversion, or both—is itself dependent on the type of gambling involved. The finding that not all gambles are created equal could be useful in gambling prevention and advertising appeal by providing a basis for understanding the role that cognitive and emotional factors play in different types of gambling.     

Emotional–motivational responses predicting choices: The role of asymmetrical frontal cortical activity

We examined (a) how emotional attachment to a choice option as indexed by state-related changes in electroencephalographic (EEG) asymmetry over the prefrontal cortex and electrodermal activity predicts choices and mediates the endowment effect and (b) the emotional–motivational responses to trade-off choices. Thirty-eight participants made choices between three 4-product packages, in which the frequency of each of the products varied. Greater relative left frontal activation and high peak skin conductance level (SCL) elicited by a previously selected choice option predicted a stronger endowment effect, suggesting that approach motivation and emotional attachment mediate the endowment effect. Not selecting a choice option with high emotional attachment elicited relatively greater right hemisphere activation, supporting also the role of loss aversion in the endowment effect. In addition, high trade-off difficulty was associated with increased withdrawal motivation (or less approach motivation) and negatively valenced arousal. We conclude with a discussion of practical implications of our findings.     

The effects of option generation on post-decisional regret in everyday life decision-making: A field experiment

While previous studies on post-decisional regret have exclusively focused on externally provided options, the present study is the first to examine post-decisional regret in situations with self-generated options. Applying a metacognitive perspective, we predicted that a large option set-size leads to less post-decisional regret than a small option set-size. This hypothesis is in contrast to the classic choice overload effect which has been reported for externally provided options. Furthermore, we hypothesized that explicitly generating options results in less post-decisional regret than not doing so. We used a field experimental design to test our two hypotheses. On a Sunday morning, participants were asked to generate either three or six options for what they could do during the afternoon and to select one of these options. In a control condition, participants were not instructed to generate options. On Sunday evening, participants indicated how much they regretted not having done something else. Our results provide support for both hypotheses.     

LINKING WEALTH AND PUNISHMENT EFFECTIVENESS: PUNISHMENT AND COOPERATION UNDER CONGRUENT HETEROGENEITIES

Global and local cooperation in supplying global public goods is often insufficient. In this respect, laboratory experiments show that peer punishment is an effective cooperation-enhancing instrument. However, it is unclear whether peer punishment would facilitate cooperation and public good provision even under congruent heterogeneities in wealth and punishment effectiveness. To this end, we experimentally study the effect of peer punishment under joint heterogeneities, where either the richest or the poorest member is also the most effective punisher. We compare these joint heterogeneities to treatments with single heterogeneities in either endowment or punishment effectiveness and to a baseline symmetry treatment with homogeneous parties. We find that heterogeneity in punishment effectiveness does not matter for cooperation, whereas endowment heterogeneity reduces cooperation compared to symmetry. This is because rich members contribute a lower portion of their endowment to the public good than their poorer counterparts. We also observe that cooperation is higher under joint heterogeneities in endowment and punishment effectiveness than under endowment heterogeneity (with no differences than under symmetry). This holds even when the rich party gains less from cooperation and is the most effective punisher. (JEL C92, D74, H41)     

Do negative emotions explain punishment in power-to-take game experiments?

An important branch of economic research on emotions has used power-to-take game experiments to study the impact of negative emotions, such as anger, irritation and contempt, on the decision to punish. We investigate experimentally the role that the specific punishment technology adopted plays in this context, and test to what extent punishing behavior can be truly attributed to negative emotions. We find that a large part (around 70%) of the punishment behavior observed in previous PTTG studies is explained by the technology of punishment adopted instead of negative emotions. Once this effect is removed, negative emotions do still play an important role, but the efficiency costs associated to them are much smaller.     

Feedback-conditional regret theory and testing regret-aversion in risky choice

Regret is an aversive emotion experienced upon the discovery that, had a different choice been made, a higher level of utility would have obtained than actually did. Because regret can be anticipated prior to choice it can lead to regret-minimising decisions. It has been shown that the experience of post-decisional regret is generally dependent on discovering the outcome of foregone acts as well as chosen acts. The most popular version of regret theory does not include an explicit account of the impact of foregone act resolution on anticipated regret-aversion as a decision motive. This restricts its domain of applicability. This paper modifies regret theory to accommodate the impact of outcome feedback on anticipated regret-aversion. The theoretical and empirical implications of this new version of regret theory are discussed.