Exploration in teams and the encouragement effect: Theory and experimental evidence

Emma Von Essen, Marieke Huysentruyt, Topi Miettinen

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Abstract

This paper analyzes a two-person, two-stage model of sequential exploration where both information and payoff externalities exist and tests the derived hypotheses in the laboratory. We theoretically show that, even when agents are self-interested and perfectly rational, the information externality induces an encouragement effect: A positive effect of first player exploration on the optimality of the second player exploring as well. When agents have other-regarding preferences and imperfectly optimize, the encouragement effect is strongest. The explorative nature of the game raises the expected surplus compared with a payoff equivalent public goods game. We empirically confirm our main theoretical predictions using a novel experimental paradigm. Our findings are relevant for motivating and managing groups and teams innovating not only for private but also and especially so, for public goods.

Original languageEnglish
JournalManagement Science
Volume66
Issue12
Pages (from-to)5861-5885
ISSN0025-1909
DOIs
Publication statusPublished - Dec 2020

Keywords

  • Decision analysis: Sequential
  • Economics: Behavior and behavioral decision making
  • Economics: Game theory and bargaining theory
  • Economics: Microeconomic behavior
  • Industrial organization: Firm objectives, organization and behavior

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