Research Paper Series

  • Title
  • Author(s)

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

The Intergovernmental Panel on Climate Change has developed a novel framework for assessing and communicating uncertainty in the findings published in their periodic assessment reports. But how should these uncertainty assessments inform decisions? We take a formal decision-making perspective to investigate how scientific input formulated in the IPCC's novel framework might inform decisions in a principled way through a normative decision model.

Departments: Strategy & Business Policy, GREGHEC (CNRS)

This on-line appendix contains more details on the sampling process, more details on the sample, a comparison to a matched sample of Canadians, more technical details on various measures and procedures, and further robustness analysis.

Keywords: Creativity, Prior Employment Variety, Jack-of-all-Trades, Invention Quality

Departments: Strategy & Business Policy, GREGHEC (CNRS)

We use creativity theory to analyze the effects of occupational job variety and industry variety on invention quality and entrepreneurial earnings. We test our ideas with survey data from 770 inventor-entrepreneurs who commercialized their own inventions. Results suggest that occupational and industry variety substitute for each other in positively affecting invention quality whereas a lack of industry variety is associated with greater entrepreneurial earnings. Results are consistent with the idea that high levels of both occupational and industry variety enables the generation and discovery of inventions, but these ideas are usually not technically feasible or financially viable.

Keywords: Creativity, Prior Employment Variety, Jack-of-all-Trades, Invention Quality, Entrepreneurial Earnings

Departments: Strategy & Business Policy, GREGHEC (CNRS), Accounting & Management Control

We study the impact of a new nationally advertised six-month intensive training program to encourage social entrepreneurship among youth. Program costs were on the order of 12,000 euros per participant. We conduct a randomized field experiment where 50 applicants were randomly allocated to the program and 50 similar applicants were rejected. We measure social entrepreneurial skills, intentions, aspirations and actions, progress towards launching a venture, and some non-cognitive skills pre and post treatment. Treatment effects were marginal on ventures’ progression six months after program completion. We find no treatment effects on non-cognitive skills, intentions or aspirations. Those that had made more progress on their venture prior to the start of the program were more likely to make progress afterwards, irrespective of whether they joined the program or not. Training people to become entrepreneurs seems to be difficult and costly.

Keywords: Field experiment, Social entrepreneurship, Entrepreneurship

Departments: Finance, GREGHEC (CNRS)

Firms reduce investment in response to non-fundamental drops in the stock price of their product-market peers, as predicted by a model in which managers rely on stock prices as a source of information but cannot perfectly filter out noise in prices. The model also implies the response of investment to noise in peers' stock prices should be stronger when these prices are more informative, and weaker when managers are better informed. We find support for these predictions. Overall, our results highlight a new channel through which non-fundamental shocks to the stock prices of some firms influence real decisions of other firms.

Departments: Finance, GREGHEC (CNRS)

This paper empirically investigates the portfolios of wealthy households and their implications for the dynamics of inequality. Using an administrative panel of all Swedish residents, we document that returns on financial wealth are on average 4% higher per year for households in the top 1% compared to the median household. These high average returns are primarily compensations for high levels of systematic risk. Abnormal risk-adjusted returns, linked for instance to informational advantages or exceptional investment skill, contribute only marginally to the high returns of the wealthy. Implications for inequality dynamics and public policy are discussed.

Keywords: Household finance, inequality, risk-taking

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

We reexamine some of the classic problems connected with the use of cardinal utility functions in decision theory, and discuss Patrick Suppes's contributions to this field in light of a reinterpretation we propose for these problems. We analytically decompose the doctrine of ordinalism, which only accepts ordinal utility functions, and distinguish between several doctrines of cardinalism, depending on what components of ordinalism they specifically reject. We identify Suppes's doctrine with the major deviation from ordinalism that conceives of utility functions as representing preference differences, while being nonetheless empirically related to choices. We highlight the originality, promises and limits of this choice-based cardinalism.

Keywords: Ordinal utility, Cardinal utility, Preference differences, Representation theorems, Suppes, Ordinalism, Cardinalism

Departments: Marketing, GREGHEC (CNRS)

Conventional wisdom holds that service failure creates customer misery and reduces firm profitability. This paper challenges this view and shows that occasional service failure can be profitable for the firm when optional protection against the resulting customer misery can be marketed. It also shows that a firm that uses such a protection strategy inflicts a calculated misery on unprotected customers and wastes resources to provide the protection. Despite these inefficiencies, using the protection strategy can lead to market expansion and social welfare gains due to lower prices

Keywords: Service Failure, Customer Damage, Random Versioning

Departments: Finance, GREGHEC (CNRS)

This paper develops a model in which traders receive a stream of private signals, and differ in their information processing speed. In equilibrium, the fast traders (FTs) quickly reveal a large fraction of their information, and generate most of the volume, volatility and profits in the market. If a FT is averse to holding inventory, his optimal strategy changes considerably as his aversion crosses a threshold. He no longer takes long-term bets on the asset value, gets most of his profits in cash, and generates a "hot potato" effect: after trading on information, the FT quickly unloads part of his inventory to slower traders. The results match evidence about high frequency traders

Keywords: Trading volume, inventory, volatility, high frequency trading, price impact, mean reversion

Departments: Accounting & Management Control, GREGHEC (CNRS)

This paper examines how corporate reliance on budgets is affected by major changes in the economic environment. We combine survey and archival data from the economic crisis that began in 2008. The results indicate that, as a result of the economic crisis, budgeting became more important for planning and resource allocation but less important for performance evaluation. Additional evidence from interviews and data gathered in a focus group further illustrate these results and show the changes organizations have introduced to respond to the economic crisis. Taken together, and contrary to more general conclusions from the literature such as an overall increase or decrease in the importance of budgeting, we find that companies emphasize certain budgeting functions over others during economic crises.

Keywords: Budgeting, budgeting functions, economic crisis, crisis management