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Location and Innovation Optimism: a Behavioral-Experimental Approach
Abstract
Using a behavioral-experimental economics approach, this paper shows that the location of a potential innovator has an impact on her or his innovation attitude, specifically on her or his innovation optimism. Moreover, such an impact is a consequence of the way in which they can access the information about the chances of succeeding if they initiate an innovation process. Isolated innovators can learn about their success chances from external objective sources, such as market research companies or public institutions. On the other hand, when the potential innovator is located in an innovation cluster, she or he has the chance to observe innovation performance and share the experience of innovation. This work provides empirical evidence to support that innovation attitudes are significantly different in both types of location: while isolated innovators exhibit innovation pessimisms, members of innovation clusters tend to be optimistic as respect to their success chances in the innovation process.
... Using a behavioural-experimental economics approach, Alventosa et al. (2016) show that the location of a potential innovator has an impact on innovation attitude and innovation optimism. They argue that a behavioural economic approach helps to explain innovation behaviours and attitudes that are beyond of the scope of the conventional non-behavioural models. ...
This paper examines how government investments in infrastructure affect new firms’ creation and location. We analyze two scenarios. With an optimizing government, optimal location is a function of government expenditures in infrastructure. With a passive government, optimal location is independent of government expenditures in infrastructure. Productivity effects in the formal sector, as contrasted with informal sector, yield a greater impact on the formation of capital stock, and shadow price of location. The impact of fees on informal firms and taxes of formal firms affect output and welfare. With an optimizing government, entrepreneurs in the formal sector will have higher output and welfare; with a passive government, it is likely that the welfare of informal entrepreneurs is smaller than the one of formal entrepreneurs.
... First, the decision as to whether or not to purchase a cyber insurance policy, and therefore the maximum premium that a potential client will pay for the policy, is conditioned by the shape of the weighting function. The estimation and calibration of this function, which can be performed using the Behavioural Economics Experiments presented in the next section, becomes a key tool to determine the optimal pricing of cyber insurance portfolios (Alventosa et al., 2016). Second, the critical role of the weighting function in driving cybersecurity behaviour provides an opportunity to design interventions aimed at enhancing cybersecurity by changing the shape of this function. ...
... First, the decision of contracting or not a cyberinsurance policy, and therefore the maximum premium that a potential insurance taker will pay for it, is conditioned by the shape of the weighting function. The estimation and calibration of this function, which can be done using the behavioural economic experiments presented in the next section (Alventosa et al. 2016), becomes a critical task for the definition of optimal pricing of cyberinsurance. Second, the critical role of the weighting function in the definition of cybersecurity behaviour provides a relevant opportunity to design an intervention aiming to increase the cybersecurity level by changing the shape of this function. ...
... Behavioral economics offers a more realistic approach to modeling the role of probabilities in decision-making. Behavioral economics also lets us model experimental phenomena that expected utility is unable to explain (Tversky and Kahneman 1992;Abdellaoui et al. 2011;Alventosa et al. 2015). This section presents a formalization of the way probabilities are transformed from the viewpoint of rank-dependent utility theory (Quiggin 1982). ...
This paper assesses the impact of the Spanish Ministry of Economy and Competitiveness’ (Board of Executives (BOE) Order ECC/2316/2015. Economy and Competitiveness Ministry, Spain, 2015) new regulation for financial product labeling. We design and conduct an economic experiment where subjects make risky investment decisions under three different treatments: a control group where subjects have only objective information about the key features of the products they must select and two treatment groups introducing visual labels resembling the labels required under the new Spanish regulation. The results of the experiment are analyzed within the framework of rank-dependent utility theory. While visual labels do not change the utility function of the subjects, they do significantly affect the subjects’ weighting functions. The introduction of numerical and color-coded labels significantly increases the concavity of the weighting functions and increases pessimism and risk-aversion in cases where the probability of obtaining the best outcome is high. Labels widen the difference between real subjects’ behavior and that of the perfectly rational agents described by expected utility theory. Consequently, our empirical findings raise doubts as to whether the new regulation actually achieves its objectives. The regulation seeks to empower retail investors by enhancing their understanding of financial products. Introducing the visual labels, however, seemingly increases the differences between actual risk levels and the decision weights applied by subjects when making decisions. Moreover, labels increase investors’ pessimism and risk-aversion when the best outcome is likely and fail to alter investors’ risk-aversion when the worst outcome is likely.
The lack of a satisfactory theory or framework to understand firm-level innovation has caused large body of literature examining the effect of different variables on firm-level innovation in an ad hoc fashion. The primary usefulness of this approach is that it has helped identify potential correlates of innovation. After surveying the literature, the correlates of firm-level innovation have been divided into two main groups for this study: factors that motivate or drive innovation and factors that support or enable innovation. The latter has been further subdivided into three groups of factors. One, firm-level characteristics that facilitate innovation; two, factors that lower the cost of innovation; and three, public policies that nurture innovation. Each of these groups is discussed in turn.
As economic competition is becoming global, innovation clusters emerge as a salient level of competitive analysis. We hence study when and how innovation clusters strengthen innovation at firm level. We review insights in this topic from different theoretical perspectives, for example, neoclassical economics, evolutionary economics, behavioral economics, strategic management and open innovation, in search of a comprehensive theoretical framework that explains the relationship between firm innovation and the concentration of innovative activities in the proximity. We then deduce five strengths which drive technological change in innovation clusters, namely attraction, information, interaction, anticipation, and rivalry. The model has implications for researchers, managers, and policymakers and contributes to our understanding of the acceleration of innovation within clusters.
Location and innovation capacity have each been the subject of much scholarly attention but have mostly been considered independently rather than in combination with each other and from a multilevel perspective. In this special issue, we present implications of the link between location and innovation capacity and identify key topics, themes and issues for future research. We highlight the main contributions of the articles included in this special issue as they shed light on some unanswered questions and open avenues for future research. As such, this special issue is intended to provide an opportunity to advance our understanding of the specific features of location and innovation capacity. It addresses questions critical to this field of research, including new theoretical perspectives, emerging methodologies, and novel approaches and techniques, encouraging the examination of their impact in different contexts.
This paper explores the relationship between individual creative productivity and learning aboutideas of others. I report evidence from a two-stage real-effort lab experiment, in which subjects perform ideageneration tasks. In the first stage some subjects observe creative output of other players, while the othersnot. This design makes possible to assess whether learning ideas of others is an important input for ideageneration and quantify its importance. In the second stage, I make ideas costly and study the subjects’willingness to pay for them. I compare the costs of ideas to the expected monetary benefits from increasedcreative productivity and characterize investment behavior of the subjects. The results show that observingoutput of others boosts productivity in creative tasks, but only when it shows truly new, previously unknownby the subject items. When ideas of others become costly, I find that the subjects do not act in a profitmaximizing way. To minimize the costs they choose to see the ideas of less creative players, which usually donot contribute many original items. As a result, the participants get less than optimum benefits. This effect ismore pronounced for subjects of lower creative ability, more risk-averse or self-confident participants andfemales. In aggregate, such behavior does not lead to the highest possible level of creative production. Thesefindings make an argument for policies that encourage exchange of information at a workplace (e.g.teamwork, workshops) and at the same time show the need for oversight, central planning of collaborativeactivities or other actions that may help to creative professionals to invest efficiently, when access to ideas ofothers is costly.
This paper reports on the results of an experimental elicitation at the individual level of all prospect theory components (i.e., utility, loss aversion, and weighting functions) in two decision contexts: situations where alternatives are described as probability distributions and situations where the decision maker must experience unknown probability distributions through sampling before choice. For description-based decisions, our results are fully consistent with prospect theory's empirical findings under risk. Furthermore, no significant differences are detected across contexts as regards utility and loss aversion. Whereas decision weights exhibit similar qualitative properties across contexts typically found under prospect theory, our data suggest that, for gains at least, the subjective treatment of uncertainty in experience-based and description-based decisions is significantly different. More specifically, we observe a less pronounced overweighting of small probabilities and a more pronounced underweighting of moderate and high probabilities for experience-based decisions. On the contrary, for losses, no significant differences were observed in the evaluation of prospects across contexts.
This paper was accepted by George Wu, decision analysis.
What are the origins of the ability to continuously explore novel domains of activity while at the same time exploiting the current knowledge base with increasing efficacy? The conflicting objectives of exploration and exploitation compete for scarce resources, among which managerial attention is possibly the most critical. This paper integrates recent findings on the neuromodulation of attention to provide a foundational step in understanding how the mind of the manager handles the exploration−exploitation dilemma. Also, this paper proposes several possible ways to combine research in neuroscience, psychology, and management to advance our knowledge of the microfoundations of managerial decision-making.
ABSTRACT Previous research indicates that entrepreneurs are generally high in dispositional optimism—the tendency to expect positive outcomes,even when such expectations are not rationally justified. The present research investigates the effects of such optimism and finds that in general, there is a negative relationship between entrepreneurs’ optimism and the performance (i.e., revenue and employment growth) of their new ventures. These effects, however, are moderated by past experience in creating new ventures and industry dynamism, such that the negative relationship between entrepreneurs’ optimism,and new venture performance,is stronger for experienced than inexperienced entrepreneurs, and stronger in dynamic than in stable environments. These findings indicate that the effects of entrepreneurs’ optimism on new venture performance,are contingent on key behavioral and environmental variables. In this
In this article we ask why innovator firms engage in innovation networks, and which factors explain the spatial dispersion
of these networks. Benefits of the use of internal and external knowledge resources for innovative performance of firms were
partially confirmed. Especially the utilisation of external competences drawn from buyers and suppliers had stronger effects
on innovative performance if complexity of innovation projects was high. Spatial concentration of innovation networks of buyers
and suppliers turned out to have a reciprocal, positive relation with interaction intensity between firms. Interaction enhances
spatial concentration of relations and vice versa, although the strength of effects differs for ties with buyers and suppliers.
Finally we found that higher regional economic embeddedness increases spatial concentration of innovation networks, whereas
R& D effort had no effect at all.
Male business leaders responded to 3 instruments, the Leadership Practices Inventory (LPI-SELF), the Kirton Adaption-Innovation Inventory (KAI), and a measure of optimism and pessimism (O/P). Approximately 5 to 6 (range = 3 to 9) of each of the 48 leaders' direct reports rated their leaders on the LPI (LPI-OBSERVER) and also responded to the O/P instrument. As predicted, both the leaders and their direct reports had lower mean scores on pessimism than a normative group; neither group differed from the norm on optimism. The leader KAI scores were negatively correlated with pessimism, and positively, though not significantly so, with optimism. Optimism was positively correlated with 2 factors of the LPI-OBSERVER, but pessimism was not correlated with any of the five LPI factors.
Innovative behavior is mostly studied theoretically, e.g., in models of patent races, and empirically, e.g., by using R&D or patent data. This research, however, is only poorly informed about the psychological tradition of creativity research. Our study is an attempt to experimentally collect behavioral data revealing in how far creativ-ity, analytical skills, personality traits and innovation game behavior in the lab are interrelated. With the help of a within-subject design we find that participants' per-formance in the innovation games is in fact related to their creativity, risk tolerance and self-control. Other personality traits such participants' anxiety, independence, tough-mindedness and extraversion, if any, only play a minor role, and the same is true for participants' analytical skills.
A model, based on Bandura's Social Cognitive Theory, was developed to test the influence of computer self-efficacy, outcome expectations, affect, and anxiety on computer usage. The model was tested using longitudinal data gathered from 394 end users over a one-year interval. Significant relationships were found between computer self-efficacy and outcome expectations, and between self-efficacy and affect and anxiety and use. Performance outcomes were found to influence affect and use, while affect was significantly related to use. Overall, the findings provide strong confirmation that both self-efficacy and outcome expectations impact on an individual's affective and behavioral reactions to information technology.
In this paper, we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm's absorptive capacity and suggest that it is largely a function of the firm's level of prior related knowledge. The discussion focuses first on the cognitive basis for an individual's absorptive capacity including, in particular, prior related knowledge and diversity of background. We then characterize the factors that influence absorptive capacity at the organizational level, how an organization's absorptive capacity differs from that of its individual members, and the role of diversity of expertise within an organization. We argue that the development of absorptive capacity, and, in turn, innovative performance are history- or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area. We formulate a model of firm investment in research and development (R&D), in which R&D contributes to a firm's absorptive capacity, and test predictions relating a firm's investment in R&D to the knowledge underlying technical change within an industry. Discussion focuses on the implications of absorptive capacity for the analysis of other related innovative activities, including basic research, the adoption and diffusion of innovations, and decisions to participate in cooperative R&D ventures.
This paper provides an efficient method to measure utility under prospect theory, the most
important descriptive theory of decision under uncertainty today. Our method is based on the
elicitation of certainty equivalents for two-outcome prospects, a common way to measure
utility. We applied our method in an experiment and found that most subjects were risk
averse for gains and risk seeking for losses but had concave utility both for gains and for
losses. This finding illustrates empirically that risk seeking and concave utility can coincide
under prospect theory, a result that was derived theoretically by Chateauneuf and Cohen
(1994). Utility was steeper for losses than for gains, which is consistent with loss aversion.
Utility did not depend on the probability used in the elicitation, which offers support for
prospect theory.
Innovation economics is usually neglecting the psychological tradition of creativity research. Our study is an attempt to experimentally collect behavioral data revealing in how far characteristics like creativity, analytical skills and personality traits on the one hand and innovative capability, the topic of innovation economics, on the other hand are interrelated. We find that participants' performance in innovation games is related to their creativity, analytical skills and risk tolerance. Personality traits such as participants' anxiety, independence, toughmindedness or extraversion at best play a minor role.
Behavioral finance is the study of how psychology affects financial decision making and financial markets. It is increasingly becoming the common way of understanding investor behavior and stock market activity. In this 2nd Edition Hersh Shefrin examines the reigning assumptions of asset pricing theory and reconstructs them to incorporate findings from behavioral finance. In other words, he takes the traditional tools in asset pricing and behavioralizes them. He constructs a solid, intact structure that challenges classic assumptions and at the same time provides a strong theory and efficient empirical tools. Building on the models developed by both traditional asset pricing theorists and behavioral asset pricing theorists, Shefrin's book takes the discussion to the next step. He provides a general behaviorally based intertemporal treatment of asset pricing theory that extends to the discussion of derivatives, fixed income securities, mean-variance efficient portfolios, and the market portfolio, based on all the latest research and theory. * The second edition continues the tradition of the first edition by being the one and only book to focus completely on how behavioral finance principles affect asset pricing, now with its theory deepened and enriched by a plethora of research since the first edition * A companion website contains a series of examples worked out as Excel spreadsheets so that readers can input their own data to test the results.
This paper aims to study the knowledge and technology transfer processes taking place in cooperation between academia and industry cooperation through an EU-funded R & D project. We follow a qualitative research methodology through a case study, incorporating interviews with the institutional actors involved (university, industry and government) in the cooperation project. While this study is limited to a case study, it does, however, highlight the importance of Triple Helix networks in order to develop research, development and innovation (RDI) initiatives and their commercialization and correspondingly enabling the identification of both potential opportunities and constraints in the process. Through the practical perspective of a successful Triple Helix cooperation case study, we were able to develop an innovative and continuous olive harvesting machine in order to satisfy a real need in the Mediterranean market. Inserted within the context of the triangulation of the Triple Helix model, this paper demonstrates the importance of RDI cooperation networks and the consequent commercialization of new tradable products with positive consequences to regional competitiveness.
Previous accounting research on how motivation affects judgment/ decision making performance has examined the influence of temporal incentives such as monetary rewards and accountability. We extend this line of research by examining dispositional motivation-the stable individual trait of achievement striving. We first examine whether dispositional motivation affects the extent to which beginning tax professionals acquire tax knowledge over the course of their academic pursuits and first year of professional practice. This aspect of knowledge acquisition has not previously been examined in accounting research. We expect that knowledge differences, in turn, will predict performance in tax issue identification and in tax research. In addition, we hypothesize dispositional motivation will have a direct effect on tax research performance, but not on issue identification. Finally, we hypothesize dispositional motivation will be mediated by task-relevant knowledge in tax research. With one exception, all the hypotheses are met. We conclude by discussing further avenues for research on the role of dispositional motivation in accounting settings.
Prospect Theory: For Risk and Ambiguity provides the first comprehensive and accessible textbook treatment of the way decisions are made both when we have the statistical probabilities associated with uncertain future events (risk) and when we lack them (ambiguity). The book presents models, primarily prospect theory, that are both tractable and psychologically realistic. A method of presentation is chosen that makes the empirical meaning of each theoretical model completely transparent. Prospect theory has many applications in a wide variety of disciplines. The material in the book has been carefully organized to allow readers to select pathways through the book relevant to their own interests. With numerous exercises and worked examples, the book is ideally suited to the needs of students taking courses in decision theory in economics, mathematics, finance, psychology, management science, health, computer science, Bayesian statistics, and engineering.
We build and empirically test a model that predicts the display of innovative behavior as a function of environmental change, with recent experience and economic status acting as moderators. We start with the model developed by Slevin (1971), which evolved from the so-called innovation boundary. This is the threshold beyond which the display of innovative behavior becomes attractive. We show how environmental change creates uncertainty about the position of the innovation boundary: however, this uncertainty is reduced by recent experiences. Furthermore, economic status serves as both an enhancer and an inhibitor of innovation. Our model was tested and largely confirmed in two experiments: one conducted in a laboratory setting and one conducted as a discrete choice experiment. Currently experiments are rarely conducted in the field of innovation studies. By presenting this evidence we also hope to encourage more authors to conduct experiments in their work.
Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements, and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment, or of how investors form beliefs, which is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.
Getting an innovation adopted is difficult; a common problem is increasing the rate of its diffusion. Diffusion is the communication of an innovation through certain channels over time among members of a social system. It is a communication whose messages are concerned with new ideas; it is a process where participants create and share information to achieve a mutual understanding. Initial chapters of the book discuss the history of diffusion research, some major criticisms of diffusion research, and the meta-research procedures used in the book. This text is the third edition of this well-respected work. The first edition was published in 1962, and the fifth edition in 2003. The book's theoretical framework relies on the concepts of information and uncertainty. Uncertainty is the degree to which alternatives are perceived with respect to an event and the relative probabilities of these alternatives; uncertainty implies a lack of predictability and motivates an individual to seek information. A technological innovation embodies information, thus reducing uncertainty. Information affects uncertainty in a situation where a choice exists among alternatives; information about a technological innovation can be software information or innovation-evaluation information. An innovation is an idea, practice, or object that is perceived as new by an individual or an other unit of adoption; innovation presents an individual or organization with a new alternative(s) or new means of solving problems. Whether new alternatives are superior is not precisely known by problem solvers. Thus people seek new information. Information about new ideas is exchanged through a process of convergence involving interpersonal networks. Thus, diffusion of innovations is a social process that communicates perceived information about a new idea; it produces an alteration in the structure and function of a social system, producing social consequences. Diffusion has four elements: (1) an innovation that is perceived as new, (2) communication channels, (3) time, and (4) a social system (members jointly solving to accomplish a common goal). Diffusion systems can be centralized or decentralized. The innovation-development process has five steps passing from recognition of a need, through R&D, commercialization, diffusions and adoption, to consequences. Time enters the diffusion process in three ways: (1) innovation-decision process, (2) innovativeness, and (3) rate of the innovation's adoption. The innovation-decision process is an information-seeking and information-processing activity that motivates an individual to reduce uncertainty about the (dis)advantages of the innovation. There are five steps in the process: (1) knowledge for an adoption/rejection/implementation decision; (2) persuasion to form an attitude, (3) decision, (4) implementation, and (5) confirmation (reinforcement or rejection). Innovations can also be re-invented (changed or modified) by the user. The innovation-decision period is the time required to pass through the innovation-decision process. Rates of adoption of an innovation depend on (and can be predicted by) how its characteristics are perceived in terms of relative advantage, compatibility, complexity, trialability, and observability. The diffusion effect is the increasing, cumulative pressure from interpersonal networks to adopt (or reject) an innovation. Overadoption is an innovation's adoption when experts suggest its rejection. Diffusion networks convey innovation-evaluation information to decrease uncertainty about an idea's use. The heart of the diffusion process is the modeling and imitation by potential adopters of their network partners who have adopted already. Change agents influence innovation decisions in a direction deemed desirable. Opinion leadership is the degree individuals influence others' attitudes
Social cognitive theory provides an agentic conceptual framework within which to analyze the determinants and psychosocial mechanisms through which symbolic communication influences human thought, affect and action. Communications systems operate through two pathways. In the direct pathway, they promote changes by informing, enabling, motivating, and guiding participants. In the socially mediated pathway, media influences link participants to social networks and community settings that provide natural incentives and continued personalized guidance, for desired change. Social cognitive theory analyzes social diffusion of new styles of behavior in terms of the psychosocial factors governing their acquisition and adoption and the social networks through which they spread and are supported. Structural interconnectedness provides potential diffusion paths; sociocognitive factors largely determine what diffuses through those paths.
b>Purpose – The aim of this paper is to understand the behavior that Australian youths have towards wireless application protocol (WAP) banking.
Design/methodology/approach – This paper is based on a quantitative study of the youth market in Australia. Social cognitive theory is utilized to support a conceptual model that is empirically tested.
Findings – The major finding from the research is that the conceptual model is partially supported which indicates the immaturity of WAP technology.
Originality/value – Social cognitive theory provides a useful explanation for youth’s intentions to use WAP technology in the banking industry. The youth market is an early adopter of technology that presents a good indicator of future market potential.<br /
Correlations were obtained between the optimism and pessimism scores and 2 measures of happiness as well as with Ss' responses to single-item questions about the likelihood of a nuclear encounter and about their religious and political commitment and philosophy of life. The instruments to measure optimism and pessimism were administered to 106 introductory psychology students on 2 occasions separated by a 2-wk interval. The test-retest reliability for the optimism scale was .75; for pessimism, .84. Both optimism and pessimism were correlated, on both administrations, with both happiness measures in the high .50s to low .60s. Of the remaining items, the strongest relation was between optimism and religious commitment. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Using a Modified Social Cognitive Theory framework, this study examines the behavior modeling and lecture-based training approaches to computer training. It extends the existing Social Cognitive Model for computer training by adding the task complexity construct to training method, prior performance, computer self-efficacy, outcome expectations, and performance. A sample of 249 students from a large state university served as participants in a laboratory experiment that was conducted to determine the task complexity*training method and task complexity* self-efficacy interaction effects on performance. Structural equation modeling with interaction effects was used to analyze the data. The results show that behavior modeling outperforms lecture-based training in a measure of final performance when task complexity is high. Further, it is found that computer self-efficacy has a greater positive effect on performance when task complexity is high than when task complexity is low. Prior performance is also found to be an important variable in the model.
Dans un article recent, Pearson et autres (1989) ont examiné des facteurs qu'influent et qu'appuient l'innovation dans l'industrie déjà développée. Le travail presenté ici provient de l'inquiétude généré par la description de leur instrument de mésure. Il propose que des outils d'analyse alternatifs, entirés du domaine de marketing (Baron et autres 1971, Crimp 1981) prémiérement presentent un défi à l'exactitude de leurs instruments, deuxiémement appuient leur conclusion principale, et troisiémement donnent lieu à une nouvelle interprétation du nombre de facteurs qui menent à une puissance d'innovation et de son importance rélative.
This paper reviews recent empirical studies of location and innovation. The objective is to highlight the questions addressed, approaches adopted, and further issues that remain. The review is organized around the traditions of measuring geographically mediated spillovers and productivity studies that introduce a geographic dimension. The first part identilies four separate strains in thc empirical spillover literature: innovation production functions; the linkages between patent citations. defined as paper trails: the rnobility of skilled labor based on the notion that knowledge spillovers are transmitted through people; and, last, knowledge spillovers embodied in traded goods. The second part considers the composition of agglomeration economies, the attributes of knowlcdge, and the characteristics of firms.
This paper proposes a new method, the (gamble-)tradeoff method, for eliciting utilities in decision under risk or uncertainty. The elicitation of utilities, to be used in the expected utility criterion, turns out to be possible even if probabilities are ambiguous or unknown. A disadvantage of the tradeoff method is that a few more questions usually must be asked to clients. Also, the lotteries that are needed are somewhat more complex than in the certainty-equivalent method or in the probability-equivalent method. The major advantage of the tradeoff method is its robustness against probability distortions and misconceptions, which constitute a major cause of violations of expected utility and generate inconsistencies in utility elicitation. Thus the tradeoff method retains full validity under prospect theory, rank-dependent utility, and the combination of the two, i.e., cumulative prospect theory.
The tradeoff method is tested for monetary outcomes and for outcomes describing life-duration. We find higher risk aversion for life duration, but the tradeoff method elicits similar curvature of utility. Apparently the higher risk aversion for life duration is due to more pronounced deviations from expected utility.
We often deal with uncertain events for which no probabilities are known. Several normative models have been proposed. Descriptive studies have usually been qualitative, or they estimated ambiguity aversion through one single number. This paper introduces the source method, a tractable method for quantitatively analyzing uncertainty empirically. The theoretical key is the distinction between different sources of uncertainty, within which subjective (choice-based) probabilities can still be defined. Source functions convert those subjective probabilities into willingness to bet. We apply our method in an experiment, where we do not commit to particular ambiguity attitudes but let the data speak. (JEL D81)
This study examined the role of dispositional optimism versus pessimism as a moderator of the tendency to become depressed after a specific stressful life change: the birth of a child. The optimism-pessimism dimension was operationally defined as generalized expectancies for favorable versus unfavorable life outcomes. Both optimism and depressive mood were assessed several weeks before childbirth. Depressive mood was measured again three weeks postpartum. Even after statistically controlling for initial dysphoria, optimism was inversely correlated with subsequent dysphoria. The effect of optimism was most pronounced among women who initially were not depressed, suggesting that optimism confers resistance to the development of depressive symptoms. Discussion centers on the relation between optimism and attributional style, and on the self-regulatory functions of optimism.
This paper investigates how regional innovation networks can assist the development of innovations to commercialization. We
argue that the inventors and innovating firms who engage in these regional innovation networks are more likely to have advanced
toward a commercialized product than if they did not engage with the network. Building upon regional cluster and innovation
network theories, we plan to develop an evaluative model in order to examine how the dynamics among factors have punctuated
innovation and regional economic growth. The benefits to be gained from this project are insights into innovation investment,
policy, and business strategies. We will focus on the innovation network in the State of Maryland as it exhibits a combination
of academia, government, and industry factors in a regional cluster. The key research questions to be addressed are: what
regional innovation networks factors contribute to sector innovation and commercialization, defined as the first stage of
diffusion, which regional factors are the best predictors of innovation success, and what is the definition of success.
KeywordsBiotechnology-Information and communication technologies-Regional innovation networks-Technology transfer and commercialization-Intangible assets-Risk capital
In this study optimism–pessimism was defined in terms of an expectancy-value model based on subjective probabilities and subjective values for positive or negative future events in one's personal life and for positive or negative future general world events [Wenglert, L., & Svenson, O. (1982). Self-image and predictions about future events. Scandinavian Journal of Psychology, 23, 153–155]. The participants were 183 students. For each subject the correlation of probability and value ratings were computed separately for the sets of events. In a first analysis the sign of a coefficient categorised a subject as optimistic or pessimistic. 177 of 183 subjects were classified as optimistic about the personal future and six subjects as pessimistic. Considering the world's future, 155 persons were optimistic and 28 pessimistic. A second analysis used the value of a significant correlation (p<0.05) for 20 observations to obtain three groups: optimistic (r≥0.444), pessimistic (r≥− 0.444) and an intermediate group. By this rule 132, or 72%, were classified as optimistic about the personal future, 47 as neither optimistic nor pessimistic and no one as pessimistic. As to the world's future, 74 were optimistic and three were pessimistic. Into the intermediate group fell 106 Ss, or 58%. Optimism–pessimism about one's personal future was weakly associated with that for the general world.
We create a novel measure of optimism using the Survey of Consumer Finance by comparing self-reported life expectancy to that implied by statistical tables. This measure of optimism correlates with positive beliefs about future economic conditions and with psychometric tests of optimism. Optimism is related to numerous work/life choices: more optimistic people work harder, expect to retire later, are more likely to remarry, invest more in individual stocks, and save more. Interestingly, however, moderate optimists display reasonable financial behavior, whereas extreme optimists display financial habits and behavior that are generally not considered prudent.
When firms seek to innovate, they must decide where to locate their innovation activity. This location choice requires firms to make a simultaneous choice about the organizational structure of innovation activity: almost by definition, multiple locations per firm imply some degree of decentralization. We compare predictions of the knowledge-based view with the predictions of organizational economics regarding the location and decentralization of R&D. Using firm-level data on R&D locations in Finland, we examine the conditions under which firms with multiple R&D locations also have greater innovation output. Our results indicate that multilocation of R&D activity is positively associated with imitative innovation output and is strongly correlated with greater external knowledge sourcing. We also find that the positive association between multiple R&D locations and innovative output does not apply to new-to-the-market innovations. The results are consistent with the interpretation that multilocation of R&D enables firms to access a broad set of external sources of knowledge in pursuit of imitative rather than new-to-the market innovation. Moreover, these findings imply heterogeneity in R&D strategies between firms pursuing new-to-the-market innovation and firms pursuing imitative innovation. It is thus important to distinguish between new-to-the-market and imitative innovations, because their determinants may differ.
Economic geography during an era of global competition involves a paradox. It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location. Yet clusters, or geographic concentrations of interconnected companies, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations. The prevalence of clusters reveals important insights about the microeconomics of competition and the role of location in competitive advantage. Even as old reasons for clustering have diminished in importance with globalization, new influences of clusters on competition have taken on growing importance in an increasingly complex, knowledge-based, and dynamic economy. Clusters represent a new way of thinking about national, state, and local economies, and they necessitate new roles for companies, government, and other institutions in enhancing competitiveness.
Recent studies indicate that breast cancer patients do not usually experience the devastating psychological consequences once viewed as inevitable. However, some adjust to the disease more poorly than others. This study examined the personality trait of optimism versus pessimism as a predictor of adjustment over the first year, postsurgery.
Seventy women with early stage breast cancer reported on their general optimism-pessimism at diagnosis. One day before surgery, and at 3-month, 6-month, and 12-month follow-ups, they reported their subjective well-being (mood scales and a measure of satisfaction with life). At follow-ups, they also rated their sex lives, indicated how much physical discomfort was interfering with their daily activities, and reported on thought intrusion.
Pessimism displayed poorer adjustment at each time point by all measures except interference from pain. Even controlling for previous well-being, pessimism predicted poorer subsequent well-being, suggesting that pessimism represents a vulnerability to a negative change in adjustment. In contrast, effects of pessimism on quality of sex life and thought intrusion were not incremental over time. Additional analyses indicated that effects of the optimism-pessimism measure were captured relatively well by a single item from the scale.
A sense of pessimism about one's life enhances a woman's risk for adverse psychological reactions to the diagnosis of, and treatment for, breast cancer. This finding suggests the potential desirability of assessing this quality informally in patients, to serve as a warning sign regarding the patient's well-being during the period surrounding and following surgery.
Economic geography in an era of global competition poses a paradox. In theory, location should no longer be a source of competitive advantage. Open global markets, rapid transportation, and high-speed communications should allow any company to source any thing from any place at any time. But in practice, Michael Porter demonstrates, location remains central to competition. Today's economic map of the world is characterized by what Porter calls clusters: critical masses in one place of linked industries and institutions--from suppliers to universities to government agencies--that enjoy unusual competitive success in a particular field. The most famous example are found in Silicon Valley and Hollywood, but clusters dot the world's landscape. Porter explains how clusters affect competition in three broad ways: first, by increasing the productivity of companies based in the area; second, by driving the direction and pace of innovation; and third, by stimulating the formation of new businesses within the cluster. Geographic, cultural, and institutional proximity provides companies with special access, closer relationships, better information, powerful incentives, and other advantages that are difficult to tap from a distance. The more complex, knowledge-based, and dynamic the world economy becomes, the more this is true. Competitive advantage lies increasingly in local things--knowledge, relationships, and motivation--that distant rivals cannot replicate. Porter challenges the conventional wisdom about how companies should be configured, how institutions such as universities can contribute to competitive success, and how governments can promote economic development and prosperity.
A paradox has been the emergence of the importance of local proximity and geographic clusters precisely at a time when globalization seems to dominate economic activity. The purpose of this paper is to resolve this paradox by explaining why and how geography matters for innovative activity and ultimately for the international comparative advantage. Globalization and the telecommunications revolution have triggered a shift in the comparative advantage of the leading developed countries towards an increased importance of innovative activity. This shift in comparative advantage has increased the value of knowledge-based economic activity. Since knowledge is generated and transmitted more efficiently via local proximity, economic activity based on new knowledge has a high propensity to cluster within a geographic region. This has triggered a fundamental shift in public policy towards business, away from policies constraining the freedom of firms to contract and towards a new set of enabling policies, implemented at the regional and local levels. Copyright 1998 by Oxford University Press.
This paper presents some of the first large-scale survey evidence linking optimism to major economic choices. We create a novel measure of optimism using the Survey of Consumer Finance by comparing a person's self-reported life expectancy to that implied by statistical tables. Optimists are more likely to believe that future economic conditions will improve. Self-employed respondents are more optimistic than regular wage earners. In general, more optimistic people work harder and anticipate longer age-adjusted work careers. They are more likely to remarry, conditional on divorce. In addition, they tilt their investment portfolios more toward individual stocks.
Economic experiments are introduced and proposed as the methodology of choice for a subset of research questions in technological entrepreneurship, an approach that has not yet been used in this field. Moreover, we provide an entrepreneurship-specific framework that matches types of research questions and feasible empirical methods. For example, a very dynamic environment is seen as a threat to most field studies, whereas the need to have entrepreneurs or other practitioners as subjects is almost a criterion for preclusion in economic experiments. The design of a recent economic experiment dealing with the timing of exploitation of an R&D based opportunity is explained and analyzed. We finally discuss the applicability of economic experiments to entrepreneurship questions in technology transfer. Copyright Springer Science+Business Media, Inc. 2005
We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory, applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses. Two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting functions. A review of the experimental evidence and the results of a new experiment confirm a distinctive fourfold pattern of risk: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability. Copyright 1992 by Kluwer Academic Publishers
Living with risk can lead to anticipatory feelings such as anxiety or hopefulness. Such feelings can affect the choice between
lotteries that will be played out in the future—choice may be motivated not only by the (static) risks involved but also by
the desire to reduce anxiety or to promote savouring. This paper provides a model of preference in a three-period setting
that is axiomatic and includes a role for anticipatory feelings. It is shown that the model of preference can accommodate
intuitive patterns of demand for information such as information seeking when a favourable outcome is very likely and information
aversion when it is more likely that the outcome will be unfavourable. Behavioural meaning is given to statements such as
“individual 1 is anxious” and “2 is more anxious than 1”. Finally, the model is differentiated sharply from the classic model
due to Kreps and Porteus.
Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements, and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment, or of how investors form beliefs, which is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.
A new theory of cardinal utility, with an associated set of axioms, is presented. It is a generalization of the von Neumann-Morgenstern expected utility theory, which permits the analysis of phenomena associated with the distortion of subjective probability.
Recent developments in the new economic geography and the literature on regional innovation systems have emphasised the potentially important role of networking and the characteristics of firms' local operating environment in shaping their innovative activity. Modeling UK, German and Irish plants' investments in R&D, technology transfer and networking, and their effect on the extent and success of plants' innovation activities, casts some doubt on the importance of both of these relationships. In particular, our analysis provides no support for the contention that firms or plants in the UK, Ireland or Germany with more strongly developed external links (collaborative networks or technology transfer) develop greater innovation intensity. However, although inter-firm links also have no effect on the commercial success of plants' innovation activity, intra-group links are important in terms of achieving commercial success. We also find evidence that R&D, technology transfer and networking inputs are substitutes rather than complements in the innovation process, and that there are systematic sectoral and regional influences in the efficiency with which such inputs are translated into innovation outputs.
This paper introduces a tractable, structural model of subjective beliefs. Since agents that plan for the future care about expected future utility flows, current felicity can be increased by believing that better outcomes are more likely. On the other hand, expectations that are biased towards optimism worsen decision making, leading to poorer realized outcomes on average. Optimal expectations balance these forces by maximizing the total well-being of an agent over time. We apply our framework of optimal expectations to three different economic settings. In a portfolio choice problem, agents overestimate the return of their investment and underdiversify. In general equilibrium, agents' prior beliefs are endogenously heterogeneous, leading to gambling. Second, in a consumption-saving problem with stochastic income, agents are both overconfident and overoptimistic, and consume more than implied by rational beliefs early in life. Third, in choosing when to undertake a single task with an uncertain cost, agents exhibit several features of procrastination, including regret, intertemporal preference reversal, and a greater readiness to accept commitment.
Can expertise close the experience-description gap? ERICES working paper
- G Attanasi
- J L Cervera
- P Hernández
- J Vila
Consumer Behavior. Ed. Upper Saddle River
- L G Schiffman
- L L Kanuk
Exogenous vs. endogenous governance in innovation communities: Effects on motivation, conflict and justice-An experimental investigation
- N Störmer
- C Herstatt
Optimal expectations (No. w10707)
- M K Brunnermeier
- J A Parker