Will a Risk-averse Decision Maker Ever Really Prefer an Unfair Gamble?*

Prakash, Chang, Hamid, and Smyser (1996) purport to show that with sufficient preference for positive skewness, risk-averse managers might elect to engage in unfair gambles. Their “proof'’of the impossible assumes the existence of a differentiable risk-preference function that satisfies certain assumptions about the first three derivatives. The fundamental flaw in their argument is that no differentiable function exists for which risk aversion and the participation in an unfair gamble are compatible.     

Will a Risk-Averse Decision Maker Ever Really Prefer an Unfair Gamble? Sometimes,He Will

The comments of Horowitz (1998) on the Prakash, Chang, Hamid, and Smyser (1996) paper are specifically directed towards Lemma 4 of the original paper. This reply proposes that Horowitz fails to recognize that the conditions stated are only necessary but not sufficient, and solutions can be obtained for some specific utility function for a given level of wealth in the case of a neutral gamble and for a range of wealth for unfair gambles. We derive the conditions to show that a risk preference function that satisfies the restrictions of Lemma 4 can exist for a given level of wealth.     

投资者的博彩行为研究——基于盈亏状态和投资者情绪的视角

本文以中国股市2000年1月至2017年9月的数据为样本，实证研究盈亏状态和投资者情绪对股票市场博彩行为的影响。本文首先构造股票博彩指数和资本利得量以及二者的交互项，然后使用Fama-MacBeth回归并分析该交互项系数估计量的统计显著性和经济显著性，结果发现，尽管我国股市投资者总体上表现出博彩偏好，但当投资者处于盈利状态时，投资者会厌恶风险，不愿意冒险买入或继续持有"博彩型"股。本文还构造了投资者情绪指数，并以中位数为界将全样本分为投资者情绪高涨期和低落期，然后通过分组研究发现，投资者情绪对博彩行为有直接和间接两种影响：较之于情绪低落期，投资者在情绪高涨期会更加偏好投资"博彩型"股票；此外，情绪还会通过影响投资者的风险态度进而间接影响投资者对"博彩型"股票的投资决策。     

Implied Preference for Seismic Design Level and Earthquake Insurance

Seismic risk can be reduced by implementing newly developed seismic provisions in design codes. Furthermore, financial protection or enhanced utility and happiness for stakeholders could be gained through the purchase of earthquake insurance. If this is not so, there would be no market for such insurance. However, perceived benefit associated with insurance is not universally shared by stakeholders partly due to their diverse risk attitudes. This study investigates the implied seismic design preference with insurance options for decisionmakers of bounded rationality whose preferences could be adequately represented by the cumulative prospect theory (CPT). The investigation is focused on assessing the sensitivity of the implied seismic design preference with insurance options to model parameters of the CPT and to fair and unfair insurance arrangements. Numerical results suggest that human cognitive limitation and risk perception can affect the implied seismic design preference by the CPT significantly. The mandatory purchase of fair insurance will lead the implied seismic design preference to the optimum design level that is dictated by the minimum expected lifecycle cost rule. Unfair insurance decreases the expected gain as well as its associated variability, which is preferred by risk-averse decisionmakers. The obtained results of the implied preference for the combination of the seismic design level and insurance option suggest that property owners, financial institutions, and municipalities can take advantage of affordable insurance to establish successful seismic risk management strategies.     

Fostering Risk Taking in Research and Development: The Importance of a Project's Terminal Value

Large firms face a conflict in managing a portfolio of high-risk projects. When an ongoing project is thought to have a low likelihood of success, project team members take risks to improve its chances of success. However, upper-level managers who allocate resources tend to withhold resources from a project with a low likelihood of success in favor of others in the portfolio that look more promising. Because this paucity of resources influences project team members to avoid risk, the total effect of success likelihood on risk taking is conflicted. The influence on risk taking of a project's terminal value—defined as the value that remains in the firm in the event of project failure—is unequivocally positive, because both senior management resource allocation and project team risk-taking propensity are encouraged by terminal value. Thus, firms can override the ambivalent effect of likelihood of success on project decision making by focusing attention on a project's terminal value.     

Supplier Selection Behavior Under Uncertainty: Contextual and Cognitive Effects on Risk Perception and Choice

Buyers often make supplier selection decisions under conditions of uncertainty. Although the analytical aspects of supplier selection are well developed, the psychological aspects are less so. This article uses supply chain management and behavioral decision theories to propose that attributes of the purchasing situation (category difficulty, category importance, and contingent pay) affect cognition that, in turn, affects a supply manager's choice. We conducted a supplier selection behavioral experiment with practicing managers to test the model's hypotheses. When the context involves an important or difficult sourcing category, higher risk perceptions exist that increase preference for a supplier with more certain outcomes, even when that choice has a lower expected payoff. However, the presence of contingent pay decreases risk perceptions through higher perceived supplier control. We also find that a manager's risk propensity increases preferences for a supplier with less certain outcomes regardless of perceived risk. Our model and results provide a theoretical framework for further study into the cognitive aspects of supplier selection behavior and provide insight into biases that influence practicing supply chain managers.     

Driving Forces Behind Informal Sanctions

This paper investigates the driving forces behind informal sanctions in cooperation games and the extent to which theories of fairness and reciprocity capture these forces. We find that cooperators' punishment is almost exclusively targeted toward the defectors, but the latter also impose a considerable amount of spiteful punishment on the cooperators. However, spiteful punishment vanishes if the punishers can no longer affect the payoff differences between themselves and the punished individual, whereas the cooperators even increase the resources devoted to punishment in this case. Our data also discriminate between different fairness principles. Fairness theories that are based on the assumption that players compare their own payoff to the group's average or the group's total payoff cannot explain the fact that cooperators target their punishment at the defectors. Fairness theories that assume that players aim to minimize payoff inequalities cannot explain the fact that cooperators punish defectors even if payoff inequalities cannot be reduced. Therefore, retaliation, i.e., the desire to harm those who committed unfair acts, seems to be the most important motive behind fairness‐driven informal sanctions.     

具有风险规避销售商的供应链最优回购契约

在销售商风险规避下,运用CVaR方法研究了供应商在直营渠道（集中式供应链）和非直营渠道（分散式供应链）下回购契约的设计问题。刻画了集中式供应链下回购契约完成渠道协调的充要条件,求解了分散式供应链的最优回购契约。比较分析了集中式和分散式供应链下回购契约的差异,得到以下结论：相对于集中式供应链,供应商在分散式供应链中趋向于设定更高的批发价格,或更低的回购价格。讨论了销售商的风险规避度对契约设计和供应商收益的影响,研究表明：销售商越规避风险,供应商的收益越低。最后提供一个案例讨论了模型在现实中的应用。     

Why Do People Keep Their Promises? An Experimental Test of Two Explanations1

Numerous psychological and economic experiments have shown that the exchange of promises greatly enhances cooperative behavior in experimental games. This paper seeks to test two theories to explain this effect. The first posits that individuals have a preference for keeping their word. The second assumes that people dislike letting down others' payoff expectations. According to the latter account, promises affect behavior only indirectly, because they lead to changes in the payoff expectations attributed to others. I conduct an experiment designed to distinguish between and test these alternative explanations. The results demonstrate that the effects of promises cannot be accounted for by changes in payoff expectations. This suggests that people have a preference for promise keeping per se.     

A modified DEA model to estimate the importance of objectives with an application to agricultural economics

This paper demonstrates a connection between data envelopment analysis (DEA) and a non-interactive elicitation method to estimate the weights of objectives for decision-makers in a multiple attribute approach. This connection gives rise to a modified DEA model that allows us to estimate not only efficiency measures but also preference weights by radially projecting each unit onto a linear combination of the elements of the payoff matrix (which is obtained by standard multicriteria methods). For users of multiple attribute decision analysis the basic contribution of this paper is a new interpretation in terms of efficiency of the non-interactive methodology employed to estimate weights in a multicriteria approach. We also propose a modified procedure to calculate an efficient payoff matrix and a procedure to estimate weights through a radial projection rather than a distance minimization. For DEA users, we provide a modified DEA procedure to calculate preference weights and efficiency measures that does not depend on any observations in the dataset. This methodology has been applied to an agricultural case study in Spain.     

Application of the knapsack model for budgeting

The budget problem of selecting projects (or activities) with known values (or payoffs) and associated costs, subject to a prescribed maximum budget, is akin to the knapsack problem, which is well documented in the literature. The optimal solution to maximise the total value of selected projects for a given budget constraint can readily be obtained. In practice, budgets are often somewhat flexible, or subject to possible changes, so that an optimal solution for a given budget value may not remain optimal when the budget is modified. It is, therefore, sensible in many situations to consider a budget range, instead of a single budget value. In addition to their original objective of maximising the total value of selected projects, decision makers are often concerned to get ‘value for money’, indicated by the ratio of payoff to cost. This paper examines how these questions can be tackled through the introduction of a stability index, to guide project selection within a defined budget range, and the use of a portfolio diagram, to help in the ranking of projects with respect to the stated twin objectives.     

The Career Attitudes and Intentions of Managers in the Finance Sector

A questionnaire survey of career attitudes and intentions was administered to 1646 middle managers from eight organizations in the UK finance sector. Lengths of time in the organization, in previous and in present job were shown to predict career attitudes and intentions. Longer-serving managers were less ambitious and were unwilling to accept various career options. Those who had spent longer in their present job neither expected any change nor were willing to accept it. While decreased inter and intraorganizational mobility are consequences of cost-cutting and recession, it is argued that efforts to increase mobility are likely to pay dividends. Other measures may also succeed, given the finding that organizations differed in terms of their managers' career attitudes and intentions over and above the effects of mobility.     

Incentives in a Stage‐Gate Process

Many large organizations use a stage‐gate process to manage new product development projects. In a typical stage‐gate process project managers learn about potential ideas from research and exert effort in development while senior executives make intervening go/no‐go decisions. This decentralized decision making results in an agency problem because the idea quality in early stages is unknown to the executive and the project manager must exert unobservable development effort in later stages. In light of these challenges, how should the firm structure incentives to ensure that project managers reveal relevant information and invest the appropriate effort to create value? In this study, we develop a model of adverse selection in research and moral hazard in development with a go/no‐go decision at the intervening gate. Our results show that the principal's uncertainty regarding early‐stage idea quality—a term we refer to as idea risk—alters the effect of late‐stage development risk. The presence of idea risk can alter the incentives offered to the agent and may lead the principal to reject projects that otherwise seem favorable in terms of positive net present value. A simulation of early‐stage ideas, found through search on a complex landscape, shows that the firm can mitigate the negative effects of idea risk by encouraging breadth of search and high tolerance for failure.     

Customized clinical case management for chronically ill patients. Health system sees remarkable results with teams of case managers,physicians, patients

Securing excellent care and positive outcomes for seriously ill, high-risk patients requires extraordinary measures. A health system in Georgia is experiencing strong results by taking a team approach to health care with case managers, physicians and patients working together.     

Optimal stock option schemes for managers

This paper analyzes which stock option scheme best aligns the interests of a firm’s manager and shareholders when both are risk-averse. We consider granting to the manager a basic fixed salary and one of the following four options: European, Parisian, Asian and American options. Choosing the strike of the options optimally, the shareholders can mostly implement a first best solution with all payoff schemes. The American option scheme best aligns the interests of the manager and the shareholders in the most common case in which the strike price equals the grant-date fair market value.     

Investigation of decision criteria for investment in risky assets

This paper examines the empirical validity of stochastic dominance rules and the mean-variance framework by analysing data generated through an experiment on individual investment decisions under uncertainty. The analyses indicated that none of the two approaches provided adequate explanation for the observed pattern of choice. An alternate framework, based on preference for skewness in addition to mean and variance, was examined. This framework provided a significantly better explanation compared to the two parameter framework. The preference for skewness was significant at higher levels of borrowing and at all levels of wealth.     

Information Specificity and Hazard Risk Potential as Moderators of Trust Asymmetry

Trust in risk managers appears to be an important antecedent of public acceptance for many hazards. However, such trust may be fragile since research suggests that negative performance information has a greater impact than positive performance information (Slovic, 1993). Closer examination of these findings suggests two potential moderators of this valence-related asymmetry-information specificity and hazard risk potential. First, we predicted that the asymmetry would be less evident for low versus high specificity information (risk management policies vs. concrete events). Second, we predicted that it would also be less evident for a low- versus high-risk hazard (pharmaceutical vs. nuclear industry). Study 1 reanalyzed Slovic's original trust asymmetry data for the nuclear industry. In line with Prediction 1, trust asymmetry was less evident for policy than event-related information. Using a new set of items with more clearly defined levels of specificity, Study 2 replicated and extended these findings for the high-risk hazard (nuclear power). In line with Prediction 2, trust asymmetry was even less evident for the low-risk hazard (pharmaceuticals). Positive policies in this industry actually had a greater impact on trust than negative ones, in contrast to previous findings. Results support an information diagnosticity account of earlier findings and suggest that trust in risk managers may be more robust than previously believed.     

Can subordinates benefit from Manager’s gossip?

Every story has two sides, so does gossip. Unlike prior studies that condemn gossip, our research analyzes whether managers’ gossip benefits subordinates. Gossip is informal conversation about other people who are absent at the scene, and gossip may be positive or negative. Positive gossip contains positiveness and appreciation, whereas negative gossip encloses negativeness and depreciation. We propose that managers’ positive gossip acts as commitment facilitator, implying a sense of recognition to subordinates. We also propose that subordinates appreciate such recognition by showing commitment toward managers. Research data are gathered from anonymous questionnaires that are distributed to 117 managers and 201 subordinates from five industries in Taiwan. Bootstrapping and structural equation modeling techniques are used to analyze the data. Managers’ positive gossip is found to be correlated with subordinates’ commitment toward managers, which also mediates subordinates’ perception of well-being, team empowerment, and job embeddedness. Yet, manager’s negative gossip is not correlated with any research variables. Our research is the first of its kind to explain why managers’ gossip has potential to be a commitment facilitator, and has brought news insights into gossip literature. Implications of the research findings also help reduce the bias associated with workplace gossip.     

我国上市公司高管人员过度自信与股利分配决策的理论和实证研究

在现有研究成果的基础上,在假设上市公司高管人员过度自信的条件下,建立恰当的数学模型从理论上研究上市公司高管人员的过度自信心理偏好对公司股利分配决策的影响机理。同时,以中国上市公司为样本对我国上市公司高管人员的过度自信心理偏好如何影响其股利分配决策进行实证研究。研究结果表明,当上市公司高管人员观察到的项目信号值大于项目质量均值时,股利分配水平与其过度自信负相关;当高管人员观察到的信号值小于项目质量均值时,股利分配水平与其过度自信正相关;在我国股票市场环境下,股利分配水平在过度自信高管人员经营的公司中更高。