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Journal Article
Manufacturing and Service Operations Management
Santiago R. Balseiro, Ozan Candogan, Huseyin Gurkan
Subject(s)
Management sciences, decision sciences and quantitative methods
Keyword(s)
Intermediary problems, mechanism design, internet advertising, extensive form games, second-price auction, multi-stage intermediation
Journal Article
Operations Research
Saed Alizamir, Francis de Véricourt, Peng Sun
Subject(s)
Management sciences, decision sciences and quantitative methods
Keyword(s)
Sequential decision making, time pressure, information search, Bayesian inference
Arrow et al. (1949) introduced the first sequential search problem, “where at each stage the options available are to stop and take a definite action or to continue sampling for more information." We study how time pressure in the form of task accumulation may affect this decision problem. To that end, we consider a search problem where the decision maker (DM) faces a stream of random decision tasks to be treated one at a time, and accumulate when not attended to. We formulate the problem of managing this form of pressure as a Partially Observable Markov Decision Process, and characterize the corresponding optimal policy. We find that the DM needs to alleviate this pressure very differently depending on how the search on the current task has unfolded thus far. As the search progresses, the DM is less and less willing to sustain high levels of workloads in the beginning and end of the search, but actually increases the maximum workload she is willing to handle in the middle of the process. The DM manages this workload by first making a priori decisions to release some accumulated tasks, and later by aborting the current search and deciding based on her updated belief. This novel search strategy critically depends on the DM's prior belief about the tasks, and stems, in part, from an effect related to the decision ambivalence. These findings are robust to various extensions of our basic set-up.
© 2019, INFORMS
Book Chapter
In Oxford Handbook of Cyber Security, edited by Paul Cornish, Oxford: Oxford University Press.
Secondary Title
Oxford Handbook of Cyber Security
Journal Article
The Quarterly Journal of Economics 132 (2): 1019–1054
Paul Heidhues, Botond Kőszegi
Subject(s)
Economics, politics and business environment
Keyword(s)
Sophistication, naivete, first-degree, price, discrimination, third-degree price discrimination, big data, privacy
JEL Code(s)
D21, D49, D69, L19
We initiate the study of naivete-based discrimination, the practice of conditioning offers on external information about consumers’ naivete. Knowing that a consumer is naive increases a monopolistic or competitive firm's willingness to generate inefficiency to exploit the consumer's mistakes, so naivete-based discrimination is not Pareto-improving, can be Pareto-damaging, and often lowers total welfare when classical preference-based discrimination does not. Moreover, the effect on total welfare depends on a hitherto unemphasized market feature: the extent to which the exploitation of naive consumers distorts trade with different types of consumers. If the distortion is homogenous across naive and sophisticated consumers, then under an arguably weak and empirically testable condition, naivete-based discrimination lowers total welfare. In contrast, if the distortion arises only for trades with sophisticated consumers, then perfect naivete-based discrimination maximizes social welfare, although imperfect discrimination often lowers welfare. And if the distortion arises only for trades with naive consumers, then naivete-based discrimination has no effect on welfare. We identify applications for each of these cases. In our primary example, a credit market with present-biased borrowers, firms lend more than socially optimal to increase the amount of interest naive borrowers unexpectedly pay, creating a homogenous distortion. The condition for naivete-based discrimination to lower welfare is then weaker than prudence.
This is an open access article.
Volume
132
Journal Pages
1019–1054
Journal Article
Review of Economic Studies 84 (1): 323–356
Paul Heidhues, Botond Kőszegi, Takeshi Murooka
Subject(s)
Economics, politics and business environment
JEL Code(s)
D14, D18, D21
We analyze conditions facilitating profitable deception in a simple model of a competitive retail market. Firms selling homogenous products set anticipated prices that consumers understand and additional prices that naive consumers ignore unless revealed to them by a firm, where we assume that there is a binding floor on the anticipated prices. Our main results establish that “bad" products (those with lower social surplus than an alternative) tend to be more reliably profitable than “good" products. Specifically, (1) in a market with a single socially valuable product and sufficiently many firms, a deceptive equilibrium - in which firms hide additional prices - does not exist and firms make zero profits. But perversely, (2) if the product is socially wasteful, then a profitable deceptive equilibrium always exists. Furthermore, (3) in a market with multiple products, since a superior product both diverts sophisticated consumers and renders an inferior product socially wasteful in comparison, it guarantees that firms can profitably sell the inferior product by deceiving consumers. We apply our framework to the mutual-fund and credit-card markets, arguing that it explains a number of empirical findings regarding these industries.
This is an open access article.
Volume
84
Journal Pages
323–356
Journal Article
Strategic Management Journal 42 (5): 992–1023
Balázs Kovács, Gianluca Carnabuci, Filippo Carlo Wezel (2021)
Subject(s)
Strategy and general management; Technology, R&D management
Keyword(s)
Category contrast, invention, patents, search, attention

Research Summary
Whereas prior innovation and strategy literature studied how attentional and search dynamics influence the creation of inventions, we examine how these same processes affect the impact of inventions after their creation. We theorize that inventions classified in “high‐contrast” technological categories garner more attention by potential users and, hence, accrue more citations than otherwise‐equivalent inventions classified in “low‐contrast” categories. We test this hypothesis via three studies. First, we estimate citation‐count models among all USPTO patents granted between 1975 and 2010. Second, we conduct a “twin patents” test comparing inventions patented both at the USPTO and at the EPO. Third, we examine minute‐by‐minute search logs from a sample of USPTO examiners. These studies support our hypothesis and extend current understandings of attentional and search dynamics in the innovation process.

Managerial Summary
Patents that receive more citations tend to have greater economic value and greater impact on future technological developments. We show that the number of citations a patent receives does not only depend on its inherent technological value, but also on seemingly neutral classification decisions affecting the likelihood that it will be noticed by potential future users. We test our arguments via three related studies. Our results demonstrate that inventions classified in “high‐contrast” technology classes garner considerably more attention – and hence citations – than twin‐inventions classified in “low‐contrast” classes. The key managerial implication is that, whenever feasible, nudging an invention towards higher‐contrast classes will increase its future worth. The key policy implication is that maximizing categorical contrast across technology classes will help users identify relevant prior patents.
© 2021 Strategic Management Society
Volume
42
Journal Pages
992–1023
Journal Article
Research Policy 50 (4): 104218
Linus Dahlander, David M. Gann, Martin W. Wallin (2021)
Subject(s)
Technology, R&D management
Keyword(s)
Appropriability, complementary assets, openness, innovation, open innovation, review, content analysis
This paper sheds fresh light on our 2010 paper How Open Is Innovation by taking into consideration notable developments in innovation over the last decade. The original paper developed four types of openness: sourcing, acquiring, selling, and revealing. Reflecting on important technological, organizational, and societal changes in the past decade, we highlight how these changes prompt novel questions for open innovation. While the core features of the original framework still stands, there are many new questions that have emerged in recent years. We end by chartering a path for future research that emphasizes opportunities, costs and tradeoffs between different modes of open innovation, the need to better understand the nature of data, new organizational designs and legal instruments, and multilevel aspects and relationships that affect the extent and nature of openness.
With permission of Elsevier
Volume
50
Journal Pages
104218
Subject(s)
Human resources management/organizational behavior
Keyword(s)
Corporate culture, remote work, leadership

ISSN (Print)
0015-6914
Working Paper
SSRN Working Paper
Daniel Grodzicki, Alexei Alexandrov, Özlem Bedre-Defolie, Sergei Koulayev (2021)
Subject(s)
Economics, politics and business environment; Finance, accounting and corporate governance
Keyword(s)
Credit card demand reactions to fees, late fee regulation, limited attention
JEL Code(s)
D12, D90, G50
We introduce a model of a rational credit card user's rather complex usage choices and develop an empirical framework to test its predictions. Employing a large national database of U.S. card accounts, we estimate how prices impact card usage and find that price effects are mostly well explained within our model. An exception is less borrowing in response to declining late-fees among low credit-score (subprime) users. Extension of our model based on "focusing theory" predicts this behavior. It also implies substantial indirect benefits of the CARD Act's late-fee cap due to subprime users re-focusing toward reducing their debt.
Pages
46
ESMT Working Paper
ESMT Working Paper No. 19-02 (R2)
Işık Biçer, Florian Lücker, Tamer Boyaci (2021)
Subject(s)
Management sciences, decision sciences and quantitative methods; Product and operations management
Keyword(s)
Product proliferation, lead-time reduction, process redesign, delayed differentiation
Product proliferation occurs in supply chains when manufacturers respond to diverse market needs by trying to produce a range of products from a limited variety of raw materials. In such a setting, manufacturers can establish market responsiveness and/or cost efficiency in alternative ways. Delaying the point of the proliferation helps manufacturers improve their responsiveness by postponing the ordering decisions of the final products until there is partial or full resolution of the demand uncertainty. This strategy can be implemented in two different ways: (1) redesigning the operations so that the point of proliferation is swapped with a downstream operation or (2) reducing the lead times. To establish cost efficiency, manufacturers can systematically reduce their operational costs or postpone the high-cost operations. We consider a multi-echelon and multi-product newsvendor problem with demand forecast evolution to analyze the value of each operational lever of the responsiveness and the efficiency. We use a generalized forecast-evolution model to characterize the demand-updating process, and develop a dynamic optimization model to determine the optimal order quantities at different echelons. Using anonymized data of Kordsa Inc., a global manufacturer of advanced composites and reinforcement materials, we show that our model outperforms a theoretical benchmark of the repetitive newsvendor model. We demonstrate that reducing the lead time of a downstream operation is more beneficial to manufacturers than reducing the lead time of an upstream operation by the same amount, whereas reducing the upstream operational costs is more favorable than reducing the downstream operational costs. We also indicate that delaying the proliferation may cause a loss of profit, even if it can be achieved with no additional costs. Finally, a decision typology is developed, which shows effective operational strategies depending on product/market characteristics and process flexibility.
Pages
47
ISSN (Print)
1866–3494