Deciding about human lives: an experimental measure of risk attitudes under prospect theory


Social Choice and Welfare

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Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

For public policies in the health, security or safety domains, the main consequences concern the number of human lives that are saved or lost, and are uncertain ex-ante. In classic economic evaluations of such policies, losses and gains of human lives are often monetized and aggregated with other costs and benefits. Uncertainty about human lives is thus treated as uncertainty about monetary consequences. In this paper, we question whether people risk human lives as they risk money.We present an experiment comparing risk attitudes towards human lives and towards money under prospect theory. The results show that respondents treat the two attributes differently when losses are involved. Specifically, the decisions involving human lives are characterizedby less elevated probability weighting in the loss domain and higher loss aversion compared to decisions involving money. These findings suggest that public preferences may differ from the cost-benefit analysis recommendations

Decision Theory Made Relevant: Between the Software and the Shrink


Research in Economics

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Départements : Economie et Sciences de la décision, GREGHEC (CNRS), Stratégie et Politique d’Entreprise

Decision theory offers a formal approach to decision making, which is often viewed and taught as the rational way to approach managerial decisions. Half a century ago it generated high hopes of capturing and perhaps replacing intuition, and providing the “right” answer in practically all managerial situations. Today it seems fair to say that decision theory has not lived up to these expectations. Behavioral science provides ample evidence that managers fail to follow the dicta of decision theory, even when these are explained to them. As a result, executives often find decision theory frustrating and useless and prefer to rely on their intuition. This paper suggests that this extreme conclusion is unwarranted and calls for a re-appraisal of decision theory. We propose that it should not always be regarded as a mathematical tool that produces the answer; rather, it can be viewed as a framework for a dialog between the decision maker and the decision theorist. In one extreme, the decision theorist studies the problem and provides the “correct’’ answer. But in another, the decision theorist only challenges the decision maker’s intuition and logic. In between, a whole gamut of possible dialogs exists, in which decision theory doesn’t replace intuition, but supports and refines it

Demand-Side Strategy, Relational Advantage, and Partner-Driven Corporate Scope: The Case for Client-Led Diversification


Strategic Management Journal

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

We advance research on corporate diversification by joining insights from the demand-side and relational views in strategy to offer a novel theory of client-led diversification. We propose that client-led diversification results from a combination of the customer-driven opportunities emphasized in the demand-side view and the creation of added value through relational assets that is a central tenet of the relational view. Furthermore, we hypothesize that suppliers’ client-specific knowledge, clients’ relational commitment to suppliers, and growth opportunities in clients’ markets (relative to the suppliers’ own markets) will magnify the client-led diversification effect. We test our hypotheses using a longitudinal dataset on patent law firms and their diversification into new domains of patent prosecution work for their corporate clients

Do stakeholder orientation and environmental pro-activity impact firm profitability?


Journal of Business Ethics

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Mots clés : Environmental proactivity, Firm profitability, Resource-based theory, Stakeholder orientation, Stakeholder theory

The impact of socially responsible corporate behavior on economic performance is a major preoccupation of managers today. This article explores the links between narrowly defined constructs: stakeholder orientation, environmental proactivity and profitability, from the perspectives of stakeholder theory and resource-based theory. We collected data on the food and beverage, and household and personal products industries. Using structural equation modeling, this paper makes two contributions. We found a negative link between companies simply having a higher stakeholder orientation and profitability. Importantly, however, environmental proactivity not only had a positive impact on profitability, but also appeared to mediate the relationship between stakeholder orientation and profitability. In other words, if a company is more environmentally proactive, it will be more attentive to a broad array of stakeholders, and this will in turn contribute positively to profitability

Economics: Between prediction and criticism


International Economic Review

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Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

We suggest that one way in which economic analysis is useful is by offering a critique of reasoning. According to this view, economic theory may be useful not only by providing predictions, but also by pointing out weaknesses of arguments. It is argued that, when a theory requires a non‐trivial act of interpretation, its roles in producing predictions and offering critiques vary in a substantial way. We offer a formal model in which these different roles can be captured

Financing Investment: The Choice between Bonds and Bank Loans


Management Science

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Départements : Finance

Mots clés : Debt structure, Capital structure, Investment, Credit supply, Competition,

We build a model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive product markets, and facing lower credit supply are more likely to issue bonds. We also demonstrate that, by changing the cost of financing, these characteristics affect the timing of investment. We test these predictions using a sample of U.S. firms and present new evidence that supports our theory

Herding and Social Media Word-of-Mouth: Evidence from Groupon

X. LI, L. WU

MIS Quarterly

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Départements : Information Systems and Operations Management, GREGHEC (CNRS)

Mots clés : Herding, word-of-mouth, social media, interaction effect, complementarity

Modern online retailing practices provide consumers with new types of real-time information that can potentially increase demand. In particular, showing past product sales information can reduce uncertainty about product quality, inducing consumers to herd. This effect could be particularly salient for experience goods due to their inherent high uncertainty about product quality. Social media word-of-mouth (WOM) can increase product awareness as product information spreads via social media, increasing demand directly and also amplifying existing quality signals such as past sales. This study examines the mechanisms behind the strategy of facilitating herding and the strategy of integrating social media platforms to understand the potential complementarities between the two strategies. We conduct empirical analysis using data from which sells goods in a fast cycle format of “daily deals”. We find that facilitating herding and integrating social media platforms are complements in generating sales, supporting that it is beneficial to combine the two strategies on social media-driven platforms. Furthermore, we find that herding is more salient for experience goods, consistent with our hypothesized mechanisms, while the effect of social media WOM does not differ between experience goods and search goods

How Do Firm Political Connections Impact Foreign Acquisitions? The Effects of Decision Makers’ Political and Firm Embeddedness


Global Strategy Journal

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Mots clés : political connections, non-market strategies, foreign acquisitions, French firms, mental models

Research summary: We examine how firm political connections established through the political embeddedness of senior decision makers affect firms’ foreign acquisition strategy. We argue that such political embeddedness affects the mental models of decision makers and, in turn, influences their preferences for particular strategies. We propose that political embeddedness leads to the formation of mental models that favor foreign acquisition strategies. We further argue that the firm embeddedness of politically-embedded decision makers alters their mental models, thereby mitigating their inclination for such strategies. We find evidence consistent with our mental models explanation using a sample of foreign acquisitions made by French publicly-traded firms during the 2009-2014 period. Overall, this study contributes to a better understanding of the mechanisms through which political connections impact global strategy. Managerial summary: We investigate how firm political connections affect firms’ foreign acquisition strategies. We argue that when firms have top decision makers with close connections to the government, they will make more foreign acquisitions. We further argue that this inclination towards foreign acquisitions is primarily driven by non-executive board members, with politically-connected executives appearing to be more reluctant to engage in such strategies. We find evidence consistent with these ideas when examining foreign acquisitions made by French publicly-traded firms managed by graduates of the prestigious ENA government school, which trains many government and senior civil servants in France

How Much Do Means Tested Benefits Reduce the Demand for Annuities?


Journal of Pension Economics and Finance

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Départements : Finance, GREGHEC (CNRS)

Mots clés : Means-Tested Benefits, Occupational Pension, Annuity

We analyze the effect of means-tested benefits on annuitization decisions using an administrative dataset of pension wealth cash-out choices. Availability of means-tested payments creates an incentive to cash out pension wealth for low and middle income earners, instead of taking the annuity. Agents trade off the advantages from annuitization, receiving longevity risk insurance, to the disadvantages, giving up “free” wealth in the form of means-tested supplemental income. Our life-cycle model demonstrates that the availability of means-tested benefits substantially reduces the desire to annuitize especially for low and intermediate levels of pension wealth. In our empirical analysis we show that the model’s predicted fraction of retirees choosing the annuity is able to match the annuitization pattern of occupational pension wealth observed in Switzerland

Impact of Average Rating on Social Media Endorsement: The Moderating Role of Rating Dispersion and Discount Threshold


Information Systems Research

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Départements : Information Systems and Operations Management, GREGHEC (CNRS)