On Horns and Halos: Confirmation Bias and Job Rotation

Confirmation bias, which refers to unintentional and unknowing selectivity in the use of evidence, belongs to the major problems faced by organizations. In this article, we discuss job rotation as a natural solution to this problem. In a nutshell, adopting job rotation provides an organization that is plagued by confirmation bias with a more reliable informational footing upon which to base its decisions. Job rotation, however, also comes with a cost, e.g. a loss of productivity or a disruption of work flows. We study this trade-off and identify conditions under which job rotation and specialization are each optimal.Confirmation Bias, Job Rotation, Work Organization

Overconfidence in the Market for Lemons

We extend Akerlof ’s (1970) “Market for Lemons” by assuming that some buyers are overconfident. Buyers in our model receive a noisy signal about the quality of the good that is at display for sale. Overconfident buyers do not update according to Bayes’ rule but take the noisy signal at face value. The main finding is that the presence of overconfident buyers can stabilize the market outcome by preventing total adverse selection. This stabilization, however, comes at a cost: rational buyers are crowded out of the market

Merger Efficiency and Managerial Incentives

We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies—even when targets with high synergies are available—to obtain high-powered incentives and, hence, a high personal income at the merger-management stage. We derive conditions under which shareholders prefer a self-commitment policy or a rent-reduction policy to deter the CEO from opportunistic recommendations

Price Discrimination in Input Markets: Quantity Discounts and Private Information

We consider a monopolistic supplier’s optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs. Under discriminatory pricing, downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs. Under uniform pricing, the same wholesale tariff is offered to all downstream firms. In contrast to the extant literature on thirddegree price discrimination with nonlinear wholesale tariffs, we find that banning discriminatory wholesale contracts—the usual legal practice in the EU and US— often is beneficial for social welfare. This result is shown to be robust even when the upstream supplier faces competition in the form of fringe supply

Overconfidence in the Markets for Lemons

We extend Akerlof (1970)’s “Market for Lemons” by assuming that some buyers are overconfident. Buyers in our model receive a noisy signal about the quality of the good that is on display for sale. Overconfident buyers do not update according to Bayes’ rule but take the noisy signal at face value. We show that the presence of overconfident buyers can stabilize the market outcome by preventing total adverse selection. This stabilization, however, comes at a cost: rational buyers are crowded out of the market

Performance of Procrastinators: On the Value of Deadlines

Earlier work has shown that procrastination can be explained by quasi-hyperbolic discounting. We present a model of effort choice over time that shifts the focus away from completion to performance on a single task. We show that quasi-hyperbolic discounting is detrimental for performance. More intrestingly, we find that being aware of the own self-control problems not necessarily increases performance. Extending this framework to a multi-task model, we show that deadlines help an agent to structure his workload more efficiently, which in turn leads to better performance. Moreover, being restricted by deadlines increases a quasi-hyperbolic discounter's well-being. Thus, we give a theoretical underpinning for recent empirical evidence and numerous casual observations.Effort Choice; Deadlines; (Quasi-) Hyperbolic Discounting; Naiveté; Present-Biased Preferences; Sophistication

Price Discrimination in Input Markets: Downstream Entry and Welfare

The extant theory on price discrimination in input markets takes the structure of the intermediate industry as exogenously given. This paper endogenizes the structure of the intermediate industry and examines the effects of banning third-degree price discrimination on market structure and welfare. We identify situations where banning price discrimination leads to either higher or lower prices for all downstream firms. These findings are driven by the fact that upstream profits are discontinuous due to entry being costly. Moreover, permitting price discrimination fosters entry which in many cases improves welfare. Nevertheless, entry can also reduce welfare because it may lead to a severe inefficiency in production.Entry, Input Markets, Market Structure, Price Discrimination, Vertical Contracting

Dyson-Schwinger study of chiral density waves in QCD

The formation of inhomogeneous chiral condensates in QCD matter at nonzero density and temperature is investigated for the first time with Dyson-Schwinger equations. We consider two massless quark flavors in a so-called chiral density wave, where scalar and pseudoscalar quark condensates vary sinusoidally along one spatial dimension. We find that the inhomogeneous region covers the major part of the spinodal region of the first-order phase transition which is present when the analysis is restricted to homogeneous phases. The triple point where the inhomogeneous phase meets the homogeneous phases with broken and restored chiral symmetry, respectively, coincides, within numerical accuracy, with the critical point of the homogeneous calculation. At zero temperature, the inhomogeneous phase seems to extend to arbitrarily high chemical potentials, as long as pairing effects are not taken into account.Comment: 5 pages, 4 figures; v2: few minor modifications, matches published versio

Calculation of sub-surface-initiated fatigue fractures in gears

Power-transmitting gears are typically heat-treated, most often case-hardened, to improve the fatigue strength and therefore to ensure higher fatigue life. The heat treatment causes higher hardness in the surface area as well as compressive residual stresses in the hardened layer. The near-surface compressive residual stresses are compensated by tensile stresses in higher depths of the gear volume. Pitting and tooth root breakage are the most common failure modes of gears, which are well researched and are also addressed in ISO 6336 [14]. The assessment of these failure modes provides the basis for the dimensioning of gears in the design phase. However, subsurfaceinitiated failures, like tooth flank fracture (TFF), can also appear at loads below the allowable level of loading for pitting and tooth root bending. TFF is a fatigue damage with crack initiation in the region of the transition between compressive and tensile residual stresses and usually leads to a total loss of drive. The existing calculation models for fatigue strength of gears with regard to TFF consider residual stresses differently. The base of the investigated calculation models is a local comparison of the occurring stresses and the strength value in the gear volume. The outcome of the calculation model from Oster [26] is highly influenced by the residual stress state. However, the material-physical model by Hertter [10] is more tolerant to slightly varying residual stresses. Further approaches such as Weber [34] and Konowalcyk [18] are based on the ideas of Oster and Hertter. The verification of the models is complicated due to the lack of residual stress measurements in larger depths under the gear flank surface. For example, residual stress measurement by Xray diffraction is only possible up to depths of approximately one millimeter. Therefore, tensile residual stresses in the inner tooth volume are considered zero in the common residual stresses calculation of Lang [19] and are not considered in the current calculation approach of ISO/DTS 6336-4 [15]. The paper describes local calculation approaches for the fatigue strength of gears with different consideration of residual stresses. Furthermore, the crack initiation point, which is mandatory for the validation of an approach, is examined. The failure mode TFF is hereby the key