Research
In my research I utilize experiments, theory, and empirical data to study questions in behavioral economics and behavioral operations management. Some of my recent research interests include:
Psychology and Contracts: The contracts we write interact in important ways with psychological factors such as reciprocity, sophistication and overconfidence. In a series of papers we study the optimal contract in a principal-agenct problem with the agent has reciprocity preferences. We show that providing a generous contract is an alternative way of providing a reciprocal agent with incentives to provide effort, and can substitute for incentive pay. The optimal mix of reciprocal and financial incentives depends on the informativeness of output, and the productivity of effort. We also examine how the structure of financial incentives leads over- and underconfident employees to sort between contracts. Finally, we examine how consumers make dynamic consumption decisions (such as using cell phone minutes) based on different pricing contracts. We show that consumers use a semi-sophisticated heuristic, however they tend to use up their minutes too quickly.
Promises and Social Norms: In many cases individuals rely on promises and informal agreements, rather than formal contracts, to support their relationships. We show that promises can significantly improve the efficiency of transactions, often more so than weak formal contracts. Additionally, we show that informal agreements can best be modeled by social norms, where there is a strong social norm to keep one's promise. Furthermore, we show that when individuals have made an informal agreement, additional formal contracts and monitoring can be detrimental. In this case the fairness of the procedure by which control is imposed is important. Finally, we show in a field setting that asking voters to promise not to sell their vote can significantly reduce vote-selling, however the efficacy depends on the form of the promise
Bargaining: I have been studying free-form and structured bargaining in supply chains, as well as renegotiation. We find that bargaining power is much more even between buyers and suppliers than previous models had assumed, and that prices depend on the relative costs of both proximate and distant tears of the supply chain. Additionally, we find that in multidimensional negotiations individuals often focus on the "superficial fairness" of salient terms such as wholesale price, and underweight the importance of other terms. Finally, we find that in many cases choose not to renegotiate their contracts after adverse changes to circumstances, instead choosing to fulfill their initial commitment.
Trust and Reliability in Supply Chains: Many important aspects of supply chain relationships, such as quality and innovation, are difficult to contract on directly. When formal contracts are limited, supply chain relationships can still be successful due to trust, non-financial incentives and repeated interactions. In this series of papers we study how firms can identify quality suppliers, and incentivize suppliers to make relationship improving decisions. We show that trustworthy suppliers can distinguish themselves by making buyer-specific investments that increase efficiency. This signaling strategy is even more efficient in a repeated setting. We show that symbolic supplier awards can similarly improve performance, however they can also lead to higher prices by increasing competition over desirable suppliers. Finally, we show that the relative control over decisions within a buying firm between the short-run and long-run focused buyers significantly affects suppliers' willingness to share cost-saving innovations.
Social Networks: Many prior studies have shown that the preferences and behaviors of individuals are correlated with those of their friends. In this ongoing project we are tracking the changing social networks and preferences of incoming Michigan Freshman. We are interested in seeing how student's preferences are influenced by the preferences of the friends, and how friendships are formed and broken based on the similarity of the students' preferences.
Innovation, Product Development and Entrepreneurship: Bringing a new product to market involves both a creative design and development stage, and an implementation and execution stage. When time-to-market constraints are binding it is an important question how to decide, and who should decide, the allocation of time between ideageneration and execution. We show experimentally that performance is significantly lower when designers choose for themselves when to transition from idea generation to execution. This is due both to later transitions, as well as delays in important activities such as initial building and testing of designs. The reduction in performance comes primarily from worse idea selection and execution, rather than idea generation. We are now examining how the timing and allocation of equity stakes affects performance in multi-stage entrepreneurial proejcts.