Research
Research
(with Paul Schäfer)
Abstract: When firms exploit behavioral biases, it is natural to think that, eventually, consumers will learn to avoid their mistakes, limiting their exploitation. Profit maximizing firms, however, have an incentive to undermine such learning. We study the consumer learning dynamics and the firm's response in a multi-unit descending price auction with a simultaneous fixed price offer. In our panel of 8 million bids by 280,000 bidders, consumers often bid more than the fixed price. Depending on competing bids, an overbid can lead to paying more than the fixed price (overpaying). We argue, overpaying increases the saliency of the consumers' mistake by making it payoff relevant, which is likely to affect consumer learning. Indeed, bidders who overpay subsequently overbid less often and are more likely to leave the market compared to bidders who similarly overbid but did not overpay. We show the resulting loss in future profits makes overpaying undesirable, and document a structural break in our data at which the firm eliminates such overpayments --- and the resulting consumer learning --- through changes in how it runs its auctions. Methodologically, we discuss identification of our treatment effects using causal graphs and show how these treatment effects identify a three-type structural model of bidder behavior with learning dynamics.
(with Vincent Weidenbörner and Werner Reinartz - under submission)
Abstract: Skyrocketing paper and printing costs lead retailers to reduce reliance on weekly print flyers by switching to digital ads to communicate price promotions. Some retailers, however, revoke this strategic decision later on, raising questions about profitability. We conduct a randomized controlled trial with a large German retailer to study the effects of replacing the store flyer with digital ads. Holding budget, promoted products, and targeted zip codes constant, we find daily revenue decreases by -5.9\% over the treatment period. We show treatment needs time to build up to -8\%, is largely driven by indirect effects on unpromoted products, affects the customer-product fit, and reduces basket size. Our results imply a company-wide switch to digital ads is unprofitable. Interestingly, in areas with high ad-refusal rates, the retailer seems to reach customers through digital ads, offsetting the loss of discontinuing the store flyer. This highlights potential for transitioning to digital in these areas, allowing retailers to improve effectiveness through better targeting and more strategic selection of products to promote.
(with David Zeimentz and Dennis Gottschlich)
Abstract: We study the impact of managerial overconfidence on investment cash-flow sensitivity, innovation and CEO compensation using data from France, Germany and the UK. Using self-collected stock trades and option exercises of C-suite directors, we revisit the canonical overconfidence classification and discuss the portability of the approach from the US to Europe. Exploiting the fact that we observe managers at different stages of their professional life, we propose a novel classification to disentangle optimism and overestimation of managerial ability. On the methodological side, we discuss the canonical identification strategies in this literature using causal graphs.
(single authored)
Abstract: Firms routinely remunerate employees with variable pay instruments like stock options or profit sharing. Standard principal agent models explain such contract features in settings where a CEO can influence the stock price or the probability of a good outcome through effort. It is, however, implausible to assume a single rank and file employee can move the stock price or profits. I explain the puzzling use of stock options for rank and file employees through a model where an optimal expectations agent may acquire company-specific skills. The wage consists of a salary, stock options, and a bonus that is increasing in company-specific skill. Crucially, I assume the probability of the good state is independent of the employees actions. Granting the optimal expectations agent stock options induces optimistic beliefs, which leads the agents to accumulate a higher skill level to the benefit of the firm.
(with Boas Bamberger)
(with Vincent Weidenbörner)