Risk Taking of Executives under Different Incentive Contracts: Experimental Evidence

Classic financial agency theory recommends compensation through stock options rather than shares to induce risk neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that are excessive from the perspective of shareholders if compensated through options. Compensation through restricted company stock reduces the uptake of excessive risks. Even under stock-ownership, however, experimental executives continue to take excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk-taking behavior is explained based on a richer array of risk attitudes derived from Prospect Theory. We use the model to derive hypotheses on what may be driving excessive risk taking in the experiment. Testing those hypotheses, we find that most of them are indeed borne out by the data. We thus conclude that a prospect-theory-based model is more apt at explaining risk attitudes under different compensation regimes than traditional principal-agent models grounded in expected utility theory

Simultaneous Least Squares Treatment of Statistical and Systematic Uncertainties

We present a least squares method for estimating parameters from measurements of event yields in the presence of background and crossfeed. We adopt a unified approach to incorporating the statistical and systematic uncertainties on the experimental measurements input to the fit. We demonstrate this method with a fit for absolute hadronic D meson branching fractions, measured in e+e- -> \psi(3770) -> D\bar D$ transitions.Comment: 9 pages, 2 figures; minor clarifications, one figure adde

The strengthening of reentrant pinning by collective interactions in the peak effect

Since it was first observed about 40 years ago [1], the peak effect has been the subject of numerous research mainly impelled by the desire to determine its exact mechanisms. Despite these efforts, a consensus on this question has yet to be reached. Experimentally, the peak effect indicates a transition from a depinned vortex phase to a reentrant pinning phase at high magnetic field. To study the effects of intrinsic pinning on the peak effect, we consider Fe$_{x}$Ni$_{1-x}$Zr$_{2}$ superconducting metallic glasses in which the vortex pinning force varies depending on the Fe content and in which a huge peak effect is seen as a function of magnetic field. The results are mapped out as a phase diagram in which it is readily seen that the peak effect becomes broader with decreasing pinning force. Typically, pinning can be understood by increased pinning centers, but here, we show that reentrant pinning is due to the strengthening of interactions (while decreasing pinning strength). Our results demonstrate the strengthening of the peak effect by collective effects.Comment: 4 pages, 4 figure

Risk Taking of Executives under Different Incentive Contracts: Experimental Evidence

Classic financial agency theory recommends compensation through stock options rather than shares to induce risk neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that are excessive from the perspective of shareholders if compensated through options. Compensation through restricted company stock reduces the uptake of excessive risks. Even under stock-ownership, however, experimental executives continue to take excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk-taking behavior is explained based on a richer array of risk attitudes derived from Prospect Theory. We use the model to derive hypotheses on what may be driving excessive risk taking in the experiment. Testing those hypotheses, we find that most of them are indeed borne out by the data. We thus conclude that a prospect-theory-based model is more apt at explaining risk attitudes under different compensation regimes than traditional principal-agent models grounded in expected utility theory.prospect theory; expected utility theory; risk attitude; executive compensation; reference dependence; experimental finance

Changes in the subsurface stratification of the Sun with the 11-year activity cycle

We report on the changes of the Sun's subsurface stratification inferred from helioseismology data. Using SOHO/MDI (SOlar and Heliospheric Observatory/Michelson Doppler Imager) data for the last 9 years and, more precisely, the temporal variation of f-mode frequencies, we have computed the variation of the radius of subsurface layers of the Sun by applying helioseismic inversions. We have found a variability of the ``helioseismic'' radius in antiphase with the solar activity, with the strongest variations of the stratification being just below the surface around 0.995$R_{\odot}$. Besides, the radius of the deeper layers of the Sun, between 0.975$R_{\odot}$ and 0.99$R_{\odot}$ changes in phase with the 11-year cycle.Comment: 14 pages, 7 figures, accepted in ApJ