Findings

Monetized

Kevin Lewis

December 01, 2018

The (bounded) benefits of correction: The unanticipated interpersonal advantages of making and correcting mistakes
Daniella Kupor, Taly Reich & Kristin Laurin
Organizational Behavior and Human Decision Processes, November 2018, Pages 165-178

Abstract:

Individuals and organizations often fear that making a mistake in their pursuit of a goal will lead others to judge them as less likely to achieve that goal. We find that the reverse regularly occurs under systematic conditions. In six studies, we examine how observers perceive both organizations and individuals who make a mistake and correct it, versus those who actively prevent that same mistake from occurring in the first place. We find that observers infer that others who make — and correct — a mistake while pursuing a goal are more likely to achieve that goal than others who successfully prevent that same mistake from occurring. We further find that observers make this inference because, although observers construe prevention to mean that a goal pursuer has been consistently vigilant, they believe mistake correction requires more effort than prevention (even when it does not). Moreover, the effort signaled by correction is perceived as more diagnostic of goal commitment than the vigilance signaled by prevention. Consequently, observers judge both individuals and organizations that make and then correct a mistake to be more likely to achieve the goal imperiled by the mistake than an otherwise identical entity that actively prevented the same mistake from occurring in the first place. We further find that these benefits of mistake correction occur only when a mistake is attributed to an unstable cause. As a result, these benefits of mistake correction do not emerge in all contexts — for example, observers attribute a mistake to a stable cause when it is repeated or has very large consequences, and this stable attribution prevents the benefits of correction from emerging.


Actions Speak Louder than Words: How Figurative Language and Gesturing in Entrepreneurial Pitches Influences Investment Judgments
Jean Clarke, Joep Paul Cornelissen & Mark Healey
Academy of Management Journal, forthcoming

Abstract:

A key challenge for entrepreneurs is to convince investors of their business ideas in a pitch. Although scholars have started to explore how entrepreneurs convey their passion and preparedness in a pitch, they have overlooked the possible variation that exists in the verbal and nonverbal expressions of entrepreneurs. We build on research in cognitive science and entrepreneurship to examine the nature and influence of specific forms of speech and gesturing used by entrepreneurs when pitching. In an initial qualitative field study we identify distinct pitching strategies entrepreneurs use, involving different combinations of verbal tactics (using literal and figurative language to frame a venture) and gesture (using different types of hand gestures to emphasize parts of their pitch and convey product and venture ideas). In an experimental study with samples of investors and students, we examine the impact of these strategies on the propensity to invest. We found that although variation in the type of language entrepreneurs used had limited effects, using gestures to depict and symbolize business ideas had strong positive effects. Our findings indicate that the skilled use of gestures by entrepreneurs helps potential investors imagine aspects of a new venture for themselves, enhancing perception of its investment potential.


Consumer Misinformation and the Brand Premium: A Private Label Blind Taste Test
Bart Bronnenberg, Jean-Pierre Dubé & Robert Sanders
NBER Working Paper, November 2018

Abstract:

We run in-store blind taste tests with a retailer’s private label food brands and the leading national brand counterparts in three large CPG categories. In a survey administered during the taste test, subjects self-report very high expectations about the quality of the private labels relative to national brands. However, they predict a relatively low probability of choosing them in a blind taste test. Surprisingly however, an overwhelming majority systematically chooses the private label in the blinded test. During the week after the intervention, the tested private label product market shares increase by 15 share points, on top of a base share of 8 share points. However, the effect diminishes to 8 share points during the second to fourth week after the test and to 2 share points during the second to fifth month after the test. Using a structural model of demand, we show these effects survive controls for point-of-purchase prices, purchase incidence, and the feedback effects of brand loyalty. We also find that the intervention increases the preference for the private label brands, and that it decreases the preference for the national brands, relative to the outside good. The findings are consistent with a treatment effect of information on demand where the memory for this information decays slowly over time. Alternative explanations to the information treatment are ruled out.


On the Empirical Content of Cheap-Talk Signaling: An Application to Bargaining
Matthew Backus, Tom Blake & Steven Tadelis
Journal of Political Economy, forthcoming

Abstract:

We outline an empirical framework to guide the analyses of signaling games and focus on three key features: sorting of senders, incentive compatibility of senders, and belief updating of receivers. We apply the framework to answer the following question: Can sellers credibly signal their private information to reduce frictions in negotiations? We argue that some sellers use round numbers to signal their willingness to cut prices in order to sell faster. Using millions of online bargaining interactions we show that items listed at multiples of $100 receive offers that are 8%-12% lower but are 15%-25% more likely to sell, demonstrating an incentive-compatibility trade-off. We then show evidence consistent with sorting and belief updating inherent to cheap-talk models. Patterns in real estate transactions suggest that round-number signaling plays a role in negotiations more generally.


The Rise of Cloud Computing: Minding Your P's, Q's and K's
David Byrne, Carol Corrado & Daniel Sichel
NBER Working Paper, October 2018

Abstract:

Cloud computing — computing done on an off-site network of resources accessed through the Internet — is revolutionizing how computing services are used. However, because cloud is so new and it largely is an intermediate input to other industries, it is difficult to track in the U.S. statistical system. Moreover, there is a paucity of systematic information on the prices of cloud services. To begin filling this gap, this paper does three things. First, we define the different segments of cloud computing and document its explosive expansion. Second, we develop new hedonic prices indexes for cloud services based on quarterly data for compute, database, and storage services offered by Amazon Web Services (AWS) from 2009 to 2016. These indexes fall rapidly over the sample period, with quickening (and double digit) rates of decline for all three products starting at the beginning of 2014. Finally, we highlight the puzzle of why investment in IT equipment in the NIPAs has been so weak while capital expenditures have exploded for IT equipment associated with cloud infrastructure. We suggest that cloud service providers are undertaking large amounts of own-account investment in IT equipment and that some of this investment may not be captured in GDP.


What's in a logo? The impact of complex visual cues in equity crowdfunding
Ammara Mahmood, Jonathan Luffarelli & Mudra Mukesh
Journal of Business Venturing, January 2019, Pages 41-62

Abstract:

Visual cues are pervasive on crowdfunding platforms. However, whether and how low validity visual cues can impact the behavior of backers remains largely unknown. In this article, we propose a disfluency-based heuristic framework for understanding the influence of low validity visual cues on equity crowdfunding platforms. Drawing on processing fluency theory and visual heuristics, we propose that backers often automatically process visual cues, and that the subjective experience of ease/difficulty with which backers perceptually process low validity visual cues serves as a heuristic and informs their perceptions of early-stage entrepreneurial ventures. We test our propositions focusing on logos (low validity visual cues that are particularly salient and ubiquitous on equity crowdfunding platforms) and logo complexity (a fundamental characteristic of logo design and established antecedent of processing disfluency). We contend that logo complexity can be interpreted by backers as a signal of venture innovativeness because more (vs. less) complex logos are more difficult to process, and thus, feel less familiar and more unique, original, and novel to backers. Since backers often value innovativeness, we further contend that logo complexity can positively impact backers' funding decisions. We find support for our framework and propositions using a multimethod approach comprising three studies: one survey, one field study, and one experiment. Theoretical contributions and managerial implications are also discussed.


The effects of facial attractiveness and trustworthiness in online peer-to-peer markets
Bastian Jaeger et al.
Journal of Economic Psychology, forthcoming

Abstract:

Online peer-to-peer markets, such as Airbnb, often include profile photos of sellers to reduce anonymity. Ert and colleagues (2016) found that more trustworthy-looking, but not more attractive-looking, Airbnb hosts from Stockholm charge higher prices for similar apartments. This suggests that people are willing to pay more for a night in an apartment if the host looks trustworthy. Here, we present a pre-registered replication testing how photo-based impressions of hosts’ attractiveness and trustworthiness influence rental prices. We extend previous investigations by (a) controlling for additional features related to price (e.g., the apartment’s location value), (b) testing for an influence of other host features, such as race and facial expression, and (c) analyzing a substantially larger sample of apartments. An analysis of 1,020 listings in New York City showed that more attractive-looking, but not more trustworthy-looking, hosts charge higher prices for their apartments. Compared to White hosts, Black (but not Asian) hosts charge lower prices for their apartments. Hosts who smile more intensely in their profile photo charge higher prices. Our results support the general conclusion that people rely on profile photos in online markets, though we find that attractiveness is more important than trustworthiness.


Round Giving: A Field Experiment on Suggested Donation Amounts in Public-Television Fundraising
David Reiley & Anya Samek
Economic Inquiry, forthcoming

Abstract:

Direct‐mail fundraisers commonly provide a set of suggested donation amounts to potential donors, in addition to a write‐in option. Standard economic models of charitable fundraising do not predict an impact of suggested amounts on charitable giving. However, our field experiments on direct‐mail solicitations to over 10,000 members of a public television station tell a different story. We find that changing one of the suggested amounts in an ask string from $100 to $95 reduces the number of gifts greater than or equal to $90 by more than 30%. This contrasts with our finding that in three independent comparisons, increasing the entire vector of suggested amounts by 20%–40% reduces the probability of giving by approximately 15%, with little effect on the average size of the gift. Both manipulations lead to a larger proportion of write‐in donations, even as they reduce the number of total gifts. We propose a simple behavioral theory to explain the data: many donors prefer to give round numbers, and donors incur a cognitive cost when choosing to give a nonsuggested amount.


Quantifying reputation and success in art
Samuel Fraiberger et al.
Science, forthcoming

Abstract:

In areas of human activity where performance is difficult to quantify in an objective fashion, reputation and networks of influence play a key role in determining access to resources and rewards. To understand the role of these factors, we reconstructed the exhibition history of half a million artists, mapping out the coexhibition network that captures the movement of art between institutions. Centrality within this network captured institutional prestige, allowing us to explore the career trajectory of individual artists in terms of access to coveted institutions. Early access to prestigious central institutions offered life-long access to high-prestige venues and reduced dropout rate. By contrast, starting at the network periphery resulted in a high dropout rate, limiting access to central institutions. A Markov model predicts the career trajectory of individual artists and documents the strong path and history dependence of valuation in art.


Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence
Rui Albuquerque, Yrjö Koskinen & Chendi Zhang
Management Science, forthcoming

Abstract:

This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR as an investment to increase product differentiation that allows firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms with high product differentiation. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm’s home state.


Public Sentiment and the Price of Corporate Sustainability
George Serafeim
Harvard Working Paper, October 2018

Abstract:

Combining corporate sustainability performance scores based on environmental, social and governance (ESG) data with big data measuring public sentiment about a company’s sustainability performance, I find that the valuation premium paid for companies with strong sustainability performance has increased over time and that the premium is increasing as a function of positive public sentiment momentum. An ESG factor going long on firms with superior or increasing sustainability performance and negative sentiment momentum and short on firms with inferior or decreasing sustainability performance and positive sentiment momentum delivers significant positive alpha. This low sentiment ESG factor is uncorrelated with other factors, such as value, momentum, size, profitability and investment. In contrast, the high sentiment ESG factor delivers insignificant alpha and is strongly negatively correlated with the value factor. The evidence suggests that public sentiment influences investor views about the value of corporate sustainability activities and thereby both the price paid for corporate sustainability and the investment returns of portfolios that consider ESG data.


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