American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article Front Matter i vi http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.i 10.1257/mic.4.2.i American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article To Review or Not to Review? Limited Strategic Thinking at the Movie Box Office Alexander L.BrownTX A&M U Colin F.CamererCA Institute of Technology DanLovalloU Sydney 1 26 Film studios occasionally withhold movies from critics before their release. These cold openings provide a natural setting to apply laboratory-developed models of limited strategic thinking to the field. In a set of 1,303 widely released movies, cold opening is correlated with a 10-30 percent increase in domestic box-office revenue, and a pattern of fan disappointment, consistent with the hypothesis that some moviegoers do not infer low quality from cold opening. While selection and endogeneity may play a role in these regressions, the full pattern of results is consistent with level-k and cognitive hierarchy behavioral-game-theoretic models. (JEL D12, D82, L82, M37) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.1 10.1257/mic.4.2.1 http://www.aeaweb.org/aej/mic/data/2009-0087_data.zip http://www.aeaweb.org/aej/mic/app/2009-0087_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article Ideologues Beat Idealists SambuddhaGhoshBoston U VinayakTripathiNew Rochelle, NY 27 49 Our model considers a majority election between two candidates--an ideologue committed to a fixed policy and an idealist who implements the ex post choice of the majority. Voters are aware that their individual rankings of policies may change after the election according to common or idiosyncratic shocks. We show that in equilibrium the ideologue often beats the idealist, even when this choice hurts all voters. Inefficiency arises both for sincere and for strategic voters; we also show that it is more pervasive in the latter case. Groups may be inflexible even when each individual has a preference for flexibility. (JEL C72, D72) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.27 10.1257/mic.4.2.27 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article Contracting with Heterogeneous Externalities ShaiBernsteinHarvard U EyalWinterCenter for the Study of Rationality, Hebrew U Jerusalem 50 76 We model situations in which a principal offers contracts to a group of agents to participate in a project. Agents' benefits from participation depend on the identity of other participating agents. We assume heterogeneous externalities and characterize the optimal contracting scheme. We show that the optimal contracts' payoff relies on a ranking, which arise from a tournament among the agents. The optimal ranking cannot be achieved by a simple measure of popularity. Using the structure of the optimal contracts, we derive results on the principal's revenue extraction and the role of the level of externalities' asymmetry. (JEL D62, D82, D86) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.50 10.1257/mic.4.2.50 http://www.aeaweb.org/aej/mic/app/2011-0152_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article Ignorance Is Bliss: An Experimental Study of the Use of Ambiguity and Vagueness in the Coordination Games with Asymmetric Payoffs MarinaAgranovCA Institute of Technology AndrewSchotterNYU 77 103 We consider a game where one player, the Announcer, has to communicate the value of a payoff relevant state of the world to a set of players who play a coordination game with multiple equilibria. While the Announcer and the players agree that coordination is desirable, since the payoffs of the players at the equilibria are unequal, they disagree as to which equilibrium is best. We demonstrate experimentally that in such coordination games, in order to mask the asymmetry of equilibrium payoffs, it may be advantageous for a utilitarian benevolent Announcer to communicate in an ambiguous or vague manner. (JEL C71, D81, D83) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.77 10.1257/mic.4.2.77 http://www.aeaweb.org/aej/mic/data/2010-0152_data.zip http://www.aeaweb.org/aej/mic/app/2010-0152_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article Contracting in Vague Environments Marie-LouiseVieroQueen's U, Kingston 104 30 This paper shows that a new trade-off arises in the optimal contract when contracting takes place with vague information (objective ambiguity), reflecting that real-world contracting often takes place under imprecise information. The choice-theoretic framework captures a decisionmaker's attitude towards vagueness by his optimism. The new trade-off is between incentive provision and exploitation of heterogeneity that arises endogenously because of the vague environment. Consequently, the optimal contract may distort effort in order to relax incentive compatibility and fully exploit the endogenously created heterogeneity, even when the agent is risk neutral and there is no insurance need in the relationship. (JEL D81, D82, D83, D86, L14) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.104 10.1257/mic.4.2.104 http://www.aeaweb.org/aej/mic/app/2010-0166_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article On the Robustness of Anchoring Effects in WTP and WTA Experiments DrewFudenbergHarvard U David K.LevineWashington U of St Louis ZachariasManiadisBocconi U 131 45 We reexamine the effects of the anchoring manipulation of Ariely, Loewenstein, and Prelec (2003) on the evaluation of common market goods and find very weak anchoring effects. We perform the same manipulation on the evaluation of binary lotteries, and find no anchoring effects at all. This suggests limits on the robustness of anchoring effects. (JEL C91, D12, D44) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.131 10.1257/mic.4.2.131 http://www.aeaweb.org/aej/mic/data/2011-0055_data.zip American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article Contractual and Organizational Structure with Reciprocal Agents FlorianEnglmaierU Konstanz StephenLeiderU MI 146 83 We solve for the optimal contract when agents are reciprocal, demonstrating that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal of effort and when the agent is highly reciprocal and/or productive. Similarly, reciprocal incentives are attractive when firm managers have strong incentive pay and discretion over employee compensation. While reciprocal incentives can be optimal even when identical firms compete, a reciprocity contract is most likely when one firm has a match-specific productivity advantage with the agent. (JEL D23, D86, J33, M12, M52) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.146 10.1257/mic.4.2.146 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=MIC&volume=4&issue=2 Journal Article Incentive Schemes, Sorting, and Behavioral Biases of Employees: Experimental Evidence IanLarkinHarvard U StephenLeiderU MI 184 214 We investigate how the convexity of a firm's incentives interacts with worker overconfidence to affect sorting decisions and performance. We demonstrate, experimentally, that overconfident employees are more likely to sort into a nonlinear incentive scheme over a linear one, even though this reduces pay for many subjects and despite the presence of clear feedback. Additionally, the linear scheme attracts demotivated, underconfident workers who perform below their ability. Our findings suggest that firms may design incentive schemes that adapt to the behavioral biases of employees to "sort in" ("sort away") attractive (unattractive) employees; such schemes may also reduce a firm's wage bill. (JEL D03, D83, J24, J31, M12) http://www.aeaweb.org/articles.php?doi=10.1257/mic.4.2.184 10.1257/mic.4.2.184 http://www.aeaweb.org/aej/mic/data/2010-0157_data.zip http://www.aeaweb.org/aej/mic/app/2010-0157_app.pdf