Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics

Marketing is an applied science that tries to explain and influence how firms and consumers actually behave in markets. Marketing models are usually applications of economic theories. These theories are general and produce precise predictions, but they rely on strong assumptions of rationality of consumers and firms. Theories based on rationality limits could prove similarly general and precise, while grounding theories in psychological plausibility and explaining facts which are puzzles for the standard approach. Behavioral economics explores the implications of limits of rationality. The goal is to make economic theories more plausible while maintaining formal power and accurate prediction of field data. This review focuses selectively on six types of models used in behavioral economics that can be applied to marketing. Three of the models generalize consumer preference to allow (1) sensitivity to reference points (and loss-aversion); (2) social preferences toward outcomes of others; and (3) preference for instant gratification (quasi-hyperbolic discounting). The three models are applied to industrial channel bargaining, salesforce compensation, and pricing of virtuous goods such as gym memberships. The other three models generalize the concept of gametheoretic equilibrium, allowing decision makers to make mistakes (quantal response equilibrium), encounter limits on the depth of strategic thinking (cognitive hierarchy), and equilibrate by learning from feedback (self-tuning EWA). These are applied to marketing strategy problems involving differentiated products, competitive entry into large and small markets, and low-price guarantees. The main goal of this selected review is to encourage marketing researchers of all kinds to apply these tools to marketing. Understanding the models and applying them is a technical challenge for marketing modelers, which also requires thoughtful input from psychologists studying details of consumer behavior. As a result, models like these could create a common language for modelers who prize formality and psychologists who prize realism

Endogenous Pensions and Retirement Behavior

This paper suggests that pension characteristics are simultaneously determined along with workers’ retirement ages. Both the age of pension eligibility and actual retirement age are determined by the productivity and marginal disutility of work, factors that are influenced by worker and job characteristics. This approach differs from previous studies of retirement that treat pensions as exogenous, implying that prior empirical work may have overestimated the responsiveness of retirement age to changes in pension structure, a possibility with obvious policy implications for efforts to raise the age of retirement. We find that, in the conventional single-equation framework, delaying the age of pension eligibility would significantly delay retirement. When treated in a recursive simultaneous system, however, age of pension eligibility retains no explanatory power.social security, early retirement, job characteristics, pension eligibility

A Field Study of the Impact of a Performance-Based Incentive Plan

Much management accounting research focuses on design of incentive compensation contracts. A basic assumption in these contracts is that performance-based incentives improve employee performance. This paper reports on a field test of the multi-period incentive effects of a performance-based compensation plan on the sales of a retail establishment. Analysis of panel data for 15 retail outlets over 66 months indicates a sales increase when the plan is implemented, an effect that persists and increases over time. Sales gains are significantly lower in the peak selling season when more temporary workers are employed

Pensions and Productivity

Employers typically view their investment in pension plans as a means of providing retirement income for their workers. Economists, on the other hand, view pension programs as a way to increase workplace productivity. Dorsey, Cornwell and Macpherson explore the theoretical and empirical basis for this perspective and, in the process, offer a complete and up-to-date discussion on the productivity theory of pensions.https://research.upjohn.org/up_press/1067/thumbnail.jp

Strategy and Profitability: Managing Profits in Inflation Economy

The inflation rate in Dubai, United Arab Emirates (UAE) rose to 5-year highs in 2014 and higher by 28% in the first half of 2015. This situation has challenged business managers to sustain business goals. Guided by Kaplan and Norton\u27s balanced scorecard framework. the purpose of this multiple case study was to explore strategies business managers use to maintain profitability with rising operating costs. Two organizations in Dubai, United Arab Emirates were purposefully sampled for this multiple case study. Data were collected through multiple semistructured interviews of a single senior manager from each organization, then triangulated with company e-mails and focus group interviews of 2 junior managers from each of the organizations. All data were analyzed using a 5-phased cycle of compiling, disassembling, reassembling, interpreting, and concluding to understand the emerging patterns. The themes revealed cost reduction initiatives and revenue enhancements initiatives as the key strategies used by the business managers. The approach and direction used in these strategies showed variance based on cost and revenue drivers of the organizations. The findings of the study can be a guide for business managers to understand the essence of effective business strategies that counter challenging economic environments, thus sustaining profitability and developing additional employment opportunities for the surrounding community

The impact of cultural sensitivity on business growth in the container shipping industry

For firms around the world, globalization brings new challenges as well as new opportunities. This process, in which information, products, people, money and technology cross national boundaries, has been rapidly growing (Walters 2001). In the current globalised business environment marked by diverse cultures and multiple interactions, recognition of cultural differences is critical. While globalization seeks to integrate different cultures in one standardized form, the culture, ethics, behaviour and local laws in each country or society serve to maintain local variations (Huff and Smith 2008). Based on an understanding of the inherent business potential of global markets, global firms have devoted efforts to searching for new markets both for selling their products and for finding more cost-efficient manufacturing opportunities (Johnson, Lenartowicz, and Apud, 2006; Walters 2001). The need to understand the systems involved in international institutions, new markets, and retail business has yielded an ongoing desire to enhance knowledge to support business (Dixon 1982, 1984, 1991). In a global business environment that includes person-to-person interactions, cross cultural gaps can become an obstacle that may negatively affect the outcome of business engagements. Sensitivity to cultural gaps and the ability to bridge them can positively impact the target of business engagements and thus enhance business (LaBahn and Harich, 1997; Su et al. 2008). This research aims to enhance knowledge regarding the impact of cultural sensitivity on business engagements in general and on sales performance in the container shipping industry in particular. The theoretical model used in this research is a mediation-based model emerging from market observations that were supported and reinforced by the literature review. The model is based on the notion that salespersons who are more culturally sensitive will develop higher level relationships with their customers. These relationships, in turn, will yield higher sales performance. The initial model was based on the positive effect of cultural sensitivity on relationship level found in the literature (Nguyen and Nguyen 2014). That initial model assumed that the correlation between the predictor variable of cultural sensitivity and the criterion variable of sales performance is mediated by the level of the salesperson-customer relationship. Yet the research findings provided no indication of the involvement of a mediation model. According to the results, relationship level plays no role in the relationship between cultural sensitivity and success in sales performance. Indeed, in cross-cultural business environments the component of cultural sensitivity is so significant in predicting performance that it renders the relationship level component statistically non-significant as a predictor of performance. This finding adds a very important layer of knowledge to global business regarding the importance of cultural sensitivity. Instead, the outcome of this research points to a different proposed model of cross-cultural sales engagements. The dimensions of relationship level, and primarily trust, that were previously assumed to be necessary for building a strong relationship with the business partner turned out to be statistically insignificant in predicting performance when cultural sensitivity is included in the model. In a cross-cultural business environment, sales can flourish without the necessity for a high relationship level with the customer so long as the salesperson maintains high cultural sensitivity. Furthermore, this study reviews topics complementary to the research: globalization, culture, cultural diversity, cultural sensitivity and relationship level, thus enhancing the body of knowledge regarding the impact of cultural sensitivity on business engagements in general and on sales performance in the container shipping industry in particular. The analysis is based on actual sales performance data and can thus provide global companies with practical knowledge regarding how cultural sensitivity and level of relationship between salesperson and customer are related to success in sales performance—the company's source of income

Evolving Approaches to the Economics of Public Policy: Views of Award-Winning Economists

For policymakers, economics is a useful tool in the development and evaluation of public policy. And like many sciences, economics is evolving to become more interdisciplinary in its approach. Today, economic theory is often used in conjunction with insights gleaned from psychology and sociology to create a more inclusive, real-world approach to implementing public policy. In this book, five award-winning economists tackle a diverse range of topics and show how applied economics has evolved to give policymakers a more nuanced approach to policy development. The award-winning economists included in this volume are Erica Field, Nancy Folbre, Avner Grief, David M. Kreps, and Michael J. Piore, and the topics they discuss include microfinance, human capital, societal institutions, worker motivation, and workplace regulation.https://research.upjohn.org/up_press/1258/thumbnail.jp

The theory of the firm

January 1987, first draft, May 1987, latest revisio

Tackling Illegal Economies Financial Crime after the Crisis in the UK

Abstract Financial crime is a large area of political and social interest and includes a variety of illicit conducts which need to be isolated and addressed as discrete offences. Financial operations, however, may cause harm even when they do not possess a criminal nature, as events around the 2008 bank crisis have shown. This report is concerned with both typologies, namely with both illicit and licit harmful behavior by financial actors. The fist section identifies specific forms of financial crime suggesting differences and similarities between tax evasion and money laundering. The analysis of these two types of offences leads to some points of clarification relating to the differences and similarities between white collar and organized crime. After highlighting the links between these forms of structured criminality, the report then provides, in the second section, an outline of the banking and financial system in the UK in an attempt to assess to what extent such system is conducive to illicit conduct. In the third section an account of the 2008 crisis in the country is offered. This is followed by the presentation of a number of case studies referring to recent episodes. Finally, the measures adopted in response to the financial crisis are examined along with their potential effectiveness 1 . Hot money Tax evasion and money laundering share several techniques and can be mutually supporting, although operationally they are quite distinct processes. Tax evasion consists in hiding or disguising the nature of legally earned income, therefore in turning legal money into illegal money. Laundering does the opposite, namely it turns illegal earnings into legal income. Tax evaders under-report their legal earnings, while money launderers over-report them. Both groups, however, deal with what we might describe as hot money, and are willing to use the services offered by very similar actors: bankers, financiers, smugglers, or front individuals and companies