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Exploration in Teams and the Encouragement Effect: Theory and Experimental Evidence

Emma von Essen (), Marieke Huysentruyt () and Topi Miettinen ()
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Emma von Essen: Department of Economics and Business Economics, Aarhus University, 8210 Aarhus V, Denmark; The Swedish Institute for Social Research, Stockholm University, 10691 Stockholm, Sweden
Marieke Huysentruyt: Strategy and Business Policy, HEC Paris, 78350 Jouy-en-Josas, France; Stockholm Institute of Transition Economics, Stockholm School of Economics, 113 50 Stockholm, Sweden

Management Science, 2020, vol. 66, issue 12, 5861-5885

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.

Date: 2020
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