The Behavioral Paradox: Why Investor Irrationality Calls for Lighter and Simpler Financial Regulation

It is widely believed that behavioral economics justifies more intrusive regulation of financial markets, because people are not fully rational and need to be protected from their quirks. This Article challenges that belief. Firstly, insofar as people can be helped to make better choices, that goal can usually be achieved through light-touch regulations. Secondly, faulty perceptions about markets seem to be best corrected through market-based solutions. Thirdly, increasing regulation does not seem to solve problems caused by lack of market discipline, pricing inefficiencies, and financial innovation; better results may be achieved with freer markets and simpler rules. Fourthly, regulatory rule makers are subject to imperfect rationality, which tends to reduce the quality of regulatory intervention. Finally, regulatory complexity exacerbates the harmful effects of bounded rationality, whereas simple and stable rules give rise to positive learning effects

Resources, Capabilities, and Routines in Public Organization

States, state agencies, multilateral agencies, and other non-market actors are relatively under-studied in the strategic entrepreneurship literature. While important contributions examining public decision makers have been made within the agency-theoretic and transaction-cost traditions, there is little research that builds on resource-based, dynamic capabilities, and behavioral approaches to organizations. Yet public organizations can be usefully characterized as stocks of physical, organizational, and human resources; they interact with other organizations in pursuing a type of competitive advantage; they can possess excess capacity, and may grow and diversify in part according to Penrosean (dynamic) capabilities and behavioral logic. Public organizations may be managed as stewards of resources, capabilities, and routines. This paper shows how resource-based, (dynamic) capabilities, and behavioral approaches shed light on the nature and governance of public organizations and suggests a research agenda for public entrepreneurship that reflects insights gained from applying strategic management theory to public organization.

A Framework of Happiness Survey and Evaluation of Gross National Happiness

Happiness surveys based on self-report can generate unreliable data due to respondents’ imperfect retrospection, vulnerability to context, and arbitrariness in measuring happiness. To overcome these problems, this article proposes to incorporate a method of measuring happiness, which is developed by Ng (1996) based on Edgeworth’s notion of “Just Perceivable Increment†of happiness, with the Day Reconstruction Method developed by Kahneman et al (2004a) to form a new happiness survey procedure. Distinguished from many surveys that simply ask respondents to rate their subjective wellbeing on a given scale, this happiness measuring method provide detailed instructions to help respondents determine and use their personal happiness units, which are interpersonally comparable, in measuring happiness. While the Day Reconstruction Method helps avoid the effects of imperfect retrospection and external disturbances, the proposed method of measuring happiness can help reduce the arbitrariness in self-measurement and derive accurate, coherent and interpersonally comparable happiness metrics. Therefore, data collected from such a survey can be used as a more reliable informational foundation for the evaluation of gross national happiness.Happiness survey, Day Reconstruction Method, Just Perceivable Increment, Wellbeing, Gross National Happiness

Rational Decision-Making in Business Organizations

Lecture to the memory of Alfred Nobel, December 8, 1978decision making;

DETERMINANTS OF THE VALUE OF SITE-SPECIFIC INFORMATION (SSI) IN AGRICULTURE: A UNIFYING THEORY TO ANALYZE ITS RELATIVE IMPACTS

This paper develops a theoretically consistent behavioral model of farmer decision-making that allows for analysis of the relative impacts of the determinants of SSI value. The model departs from previous literature by assuming that SSI reduces uncertainty, but not eliminate it. Results show that increasing the accuracy (or the "level of informativeness") of SSI, increasing initial wealth, improving management ability to reduce uncertainty in the posterior, and increasing the uncertainty in the prior, increases the value of SSI. Furthermore, mean input use is found to decrease, as SSI becomes more "informative." On the other hand, the value of SSI is found to be decreasing as relative risk aversion increases. These results have policy implications for controlling non-point source pollution from fertilizer inputs and SSI-adoption behavior.Farm Management, Research Methods/ Statistical Methods,

Exploring the remuneration ‘black box’: establishing an organizational learning insight into changing remuneration committee ‘social worlds’

Current executive compensation research posits a need to extend analysis beyond principalagent theory in order to explore the complex social influences and processes implicated in Remuneration Committee (RemCo) decision-making (e.g. Bender, 2007; Kakabadse et al, 2006; Main et al., 2007), particularly given the current uproar surrounding reported levels and structuring of executive remuneration. We respond to this international need by highlighting how innovative organizational learning theorizing can be integrated into further investigations of the remuneration ‘Black Box’, in order to focus attention upon the nuances of what and how organizational learning takes place in the remuneration process. Additionally, we note the importance of investigating the main actors and particularly their performance of complex roles within their rapidly evolving ‘social worlds’. By exploring the organizational learning phenomena implicated in executive remuneration, we argue that practitioners, regulatory bodies etc. can appreciate further the implications of their respective decision-making

Supporting Attention Allocation in Multitask Environments : Effects of Likelihood Alarm Systems on Trust, Behavior, and Performance

Dieser Beitrag ist mit Zustimmung des Rechteinhabers aufgrund einer (DFG geförderten) Allianz- bzw. Nationallizenz frei zugänglich.This publication is with permission of the rights owner freely accessible due to an Alliance licence and a national licence (funded by the DFG, German Research Foundation) respectively.Objective: The aim of the current study was to investigate potential benefits of likelihood alarm systems (LASs) over binary alarm systems (BASs) in a multitask environment. Background: Several problems are associated with the use of BASs, because most of them generate high numbers of false alarms. Operators lose trust in the systems and ignore alarms or cross-check all of them when other information is available. The first behavior harms safety, whereas the latter one reduces productivity. LASs represent an alternative, which is supposed to improve operators’ attention allocation. Method: We investigated LASs and BASs in a dual-task paradigm with and without the possibility to cross-check alerts with raw data information. Participants’ trust in the system, their behavior, and their performance in the alert and the concurrent task were assessed. Results: Reported trust, compliance with alarms, and performance in the alert and the concurrent task were higher for the LAS than for the BAS. The cross-check option led to an increase in alert task performance for both systems and a decrease in concurrent task performance for the BAS, which did not occur in the LAS condition. Conclusion: LASs improve participants’ attention allocation between two different tasks and therefore lead to an increase in alert task and concurrent task performance. The performance maximum is achieved when LAS is combined with a cross-check option for validating alerts with additional information. Application: The use of LASs instead of BASs in safety-related multitask environments has the potential to increase safety and productivity likewise

Rational choice, preferences over actions and rule-following behavior

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On SARS type economic effects during infectious disease outbreaks

Infectious disease outbreaks can exact a high human and economic cost through illness and death. But, as with severe acute respiratory syndrome (SARS) in East Asia in 2003, or the plague outbreak in Surat, India, in 1994, they can also create severe economic disruptions even when there is, ultimately, relatively little illness or death. Such disruptions are commonly the result of uncoordinated and panicky efforts by individuals to avoid becoming infected, of preventive activity. This paper places these"SARS type"effects in the context of research on economic epidemiology, in which behavioral responses to disease risk have both economic and epidemiological consequences. The paper looks in particular at how people form subjective probability judgments about disease risk. Public opinion surveys during the SARS outbreak provide suggestive evidence that people did indeed at times hold excessively high perceptions of the risk of becoming infected, or, if infected, of dying from the disease. The paper discusses research in behavioral economics and the theory of information cascades that may shed light on the origin of such biases. The authors consider whether public information strategies can help reduce unwarranted panic. A preliminary question is why governments often seem to have strong incentives to conceal information about infectious disease outbreaks. The paper reviews recent game-theoretic analysis that clarifies government incentives. An important finding is that government incentives to conceal decline the more numerous are non-official sources of information about a possible disease outbreak. The findings suggest that honesty may indeed be the best public policy under modern conditions of easy mass global communications.Health Monitoring&Evaluation,Disease Control&Prevention,Population Policies,Hazard Risk Management,Gender and Health