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Exploration in Teams and the Encouragement Effect: Theory and Evidence

Emma von Essen (), Marieke Huysentruyt and Topi Miettinen ()
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Emma von Essen: Department of Economics and Business Economics, Aarhus University, Postal: Department of Economics and Business Economics, Aarhus University, Fuglesangs Alle 4, DK-8210 Aarhus V
Marieke Huysentruyt: Strategy and Business Policy, HEC Paris, and SITE, Stockholm School of Economics

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

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 to 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.

Keywords: Economics: Behavior and Behavioral Decision Making; Economics: Game Theory and Bargaining Theory; Economics: Microeconomic Behavior; Industrial Organization: Firm Objectives; Organization and Behavior; Decision analysis: Sequential (search for similar items in EconPapers)
JEL-codes: C72 C91 D03 D83 O31 (search for similar items in EconPapers)
Pages: 86
Date: 2019-08-14
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2019-10

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