Daniel Sgroi

The Optimal Choice of Pre-Launch Reviewer

We develop a framework in which: (i) a firm can have a new product tested publicly before launch; and (ii) tests vary in toughness, holding expertise fixed. Price flexibility boosts the positive impact on consumer beliefs of passing a tough test and mitigates the negative impact of failing a soft test. As a result, profits are convex in toughness: the firm selects either the toughest or softest test available. The toughest test is optimal when consumers start with an unfavorable prior and receive sufficiently uninformative private signals (an “innovative” product); the softest test is optimal when signals are sufficiently informative.

Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare

Herding arises when an agents private informationis swamped by public information in what Jackson and Kalai (1997) call a recurring game. The agent will fail to reveal his own information and will follow the actions of his predecessor and, as a result, useful information is lost, which might have highlighted a better choice for later decision-makers. This paper evaluates the strategy of forcing a sub-set of agents to make their decision early from the perspective of a social planner, and a firm with a valuable or valueless procuct. Promotional activity by firms can be explained as an attemps to overcome the herd externality and maximize sales.

Herding and Contrarian Behavior in Financial Markets - An Experimental Analysis

We analyze and confirm the existence and extent of rational informational herding and rational informational contrarianism in a financial market experiment, and compare and contrast these with equivalent irrational phenomena. In our study, subjects generally behave according to benchmark rationality. Traders who should herd or be contrarian in theory are the significant sources of both within the data. Correcting for subjects who can be identified as less rational increases our ability to predict herding or contrarian behavior considerably.

Using Neural Networks to Model Bounded Rationality in Interactive Decision-Making

This paper considers the use of neural networks to model bounded rational behaviour. The underlying theory and use of neural networks is now a component of various forms of scientific enquiry, be it modelling artificial intelligence, developing better pattern recognition or solving complex optimization problems. This paper surveys the recent literature in economics on their use as a plausible model of learning by example, in which the focus is not on improving their ability to perform to the point of zero error, but rather examining the sorts of errors they make and comparing these with observed bounded rational behaviour.

Strategy Learning in 3x3 Games by Neural Networks

This paper presents a neural network based methodology for examining the learning of game-playing rules in never-before seen games. A network is trained to pick Nash equilibria in a set of games and then released to play a larger set of new games. While faultlessly selecting Nash equilibria in never-before seen games is too complex a task for the network, Nash equilibria are chosen approximately 60% of the times. Furthermore, despite training the network to select Nash equilibria, what emerges are endogenously obtained bounded-rational rules which are closer to payoff dominance, and the best response to payoff dominance.

The Superiority of Tough Reviewers in a Model of Simultaneous Sales

This paper considers the impact of reviewers on the sale of a product of unknown quality. Sales occur simultaneously after an initial review by an unbiased, pessimistic or optimistic reviewer and we examine the impact on sales in each case. We find that counter-intuitively a pessimistic reviewer is best for the firms profits regardless of the quality of the product. An endorsement by such a pessimist provides an excellent signal of the products quality, while consumers expect the reviewer to fail to endorse, so receiving no endorsement will not impact too heavily on the firms expected profits. This asymmetric impact provides a strong explanation for the stylized fact that reviewers are often viewed as being very critical.

Product Launches with Biased Reviewers: The Importance of Not Being Earnest

The standard simple sequential herding model is altered to allow a firm with a new product to have it reviewed publicly before launch. Reviewers are either inherently pessimistic, optimistic or unbiased. We find the counter-intuitive result that a firm with a good product will prefer a pessimistic reviewer. Although firms with a bad product prefer unbiased reviewers, signalling considerations will force them to copy the choice of the good product firm in order to avoid revealing product type. This asymmetric impact provides a strong explanation for the stylized fact that reviewers are often viewed as being very critical.

On the motivations for the dual-use of electronic and traditional cigarettes

ABSTRACT We apply a classical economic categorization of preferences to identify the motivations of dual-users of electronic and traditional cigarettes. The responses of 2406 US adults (including 413 dual-users) in 2015 were collected using a novel online survey along with a follow-up in 2016 of 143 of these adults (68 dual-users). A sizeable minority of 37% of dual-users reported viewing electronic and conventional cigarettes primarily as complements. Of those who had never smoked or used electronic cigarettes, only 27% thought the complementarity motive would be primary. Dual-user motivations were associated with quit-attempt, cessation methods, gender and age. 1 year on, there was a positive relationship between the level of complementarity in the dual-user’s motives and their change in self-reported traditional cigarette consumption. It is concluded that the application of a canonical economic classification of preferences may reveal important heterogeneities among the dual-user population.

LABORATORY EVIDENCE FOR EMOTIONAL EXTERNALITIES: AN ESSAY IN HONOR OF EJ MISHAN

Professor EJ Mishan was a world expert on the idea of externalities. In this paper, we provide evidence for the intuitive idea of “emotional externalities”. These might be viewed as psychological spillovers from the well-being of one person upon the well-being of another. A new form of laboratory experiment is implemented. “Happiness” answers are elicited in the first few seconds of the experiment. Tragic life events — like family illness and bereavement — are then studied. The paper documents evidence consistent with a powerful caring-about-others effect. The paper’s results also suggest an approximate equivalence between life-satisfaction data and happiness data.Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities … All these aspects of subjective well-being (cognitive evaluations, positive affects and negative affects) should be measured separately to get a satisfactory appreciation of people’s lives. Which of these aspects matters more, and for what purpose, is still an open question.Stiglitz et al., Commission on the Measurement of Economic Performance and Social Progress, 2009

Social Network Theory, Broadband and the World Wide Web

This paper aims to predict some possible futures for the World Wide Web based on several key network parameters: size, complexity, cost and increasing connection speed thorough the uptake of broadband technology. This is done through the production of a taxonomy specifically evaluating the stability properties of the fully-connected star and complete networks, based on the Jackson and Wolinsky (1996) connections model modified to incorporate complexity concerns. We find that when connection speeds are low neither the star nor complete networks are stable, and when connection speeds are high the star network is usually stable, while the complete network is never stable. For intermediate speed levels much depends upon the other parameters. Under plausible assumptions about the future, we find that the Web may be increasingly dominated by a single intermediate site, perhaps best described as a search engine.