Knowledge that Transforms

Muriel Niederle, Carmit Segal, Lise Vesterlund Do two wrongs make a right? Since the Civil Rights Act of 1964, affirmative action has been used to compensate for the distortion that discrimination imposes on the selection of candidates. However, affirmative action has been often criticized for causing reverse discrimination and lowering the qualifications of those hired under the policy. But affirmative action could have a similar corrective impact when qualified individuals fail to apply for a job. The authors evaluate the effect of introducing a female gender quota in an environment where high-performing women fail to enter competitions they can win because they are discouraged. The authors show that guaranteeing women equal representation among winners increases their entry. The response exceeds that predicted by the change in probability of winning and is in part driven by women being more willing to compete against other women. The insight for management: Affirmative action helps more than it hurts; if employers choose the best candidate from a pool, affirmative action can boost the talent in the pool by encouraging broader participation. Mingfeng Lin, Nagpurnanand R. Prabhala, Siva Viswanathan Do popular people get all the breaks? The authors study the online market for peer-to-peer (P2P) lending, in which individuals bid on unsecured microloans sought by other individual borrowers. The authors examine a large sample of consummated and failed listings from the largest online P2P lending marketplace, Prosper.com, and find that the online friendships of borrowers act as signals of credit quality. Friendships increase the probability of successful funding, lower interest rates on funded loans, and are associated with lower ex post default rates. The insight for management: Friendships in P2P markets are a good indicator of credit quality; more friends means lower probability of default. Luc Renneboog, Christophe Spaenjers Is beauty in the eye of the money holder? The Wall Street Journal estimated that approximately 6% of total wealth is held in “passion investments” such as art. But what determines the value of art? For example, Claude Monet's Dans la Prairie sold for 11.2 million British pounds in 2009 after being sold for 14.3 million in 1988 and 15.4 million in 1999. The authors examine the price determinants and investment performance of art by statistical examination of more than one million auction transactions of paintings and works on paper. The authors conclude that art has appreciated in value by a moderate 3.97% per year, in real U.S. dollar terms, between 1957 and 2007—a performance similar to that of corporate bonds—at much higher risk. The authors find larger average price appreciations, but higher volatilities, in higher price brackets. The authors find that measures of high-income consumer confidence and art market sentiment predict art price trends. The insight for management: Buy art to hang on your wall, not to pay for your retirement. Johannes Berger, Christine Harbring, Dirk Sliwka Working hard, or hardly working? That is the question! As one might imagine, an employee's true efforts are at best imprecisely captured by objective figures. The authors conduct a real-effort experiment in which supervisors have to rate the performance of individual workers who in turn receive a bonus payment based on these ratings. They compare a baseline treatment in which supervisors are not restricted in their rating behavior to a forced distribution system in which they have to assign differentiated grades. They find that productivity is significantly higher under a forced distribution by approximately 6% to 12%. However, the productivity effects are less clear-cut when participants have prior experience with the system, and, worse, a forced distribution becomes detrimental when workers have access to a simple option to sabotage each other. The insight for management: Forced distribution evaluation improves effort but may also increase destructive competition between employees. Simon P. Anderson, Régis Renault Want to know more? Call now! Advertising performs many functions, such as informing consumers, signaling quality, and confirming prices. But one key role of advertising is to excite potential consumers into learning more about the product. Advertising content might contain quality information, price information, and attributes to appeal to a certain subset of customers. But which of these does an advertiser stress to generate consumer interest in seeking more information? The authors find that first quality information is disclosed, then price information is revealed, and then “horizontal product information” (attributes that appeal to some consumer segments) is added to the advertising mix. The insight for management: A dynamic advertising strategy with changing emphases must be employed to garner maximal consumer interest in learning more about your product. Qian Liu, Dan Zhang What to buy, and when to buy it? Consumers might choose to purchase not only between products, but also between points in time. What is the appropriate pricing strategy given these dynamics? The authors show that more thoughtful consumers can reduce the profit of firms, but lower-valuation customers are particularly adversely affected. Interestingly, if either firm can hold the line on prices, both firms are generally more profitable. This is particularly true if higher-quality firms can hold prices constant. The insight for management: Pricing games over time are less successful in the face of intelligent consumers; firms can be more profitable through simpler and less costly static pricing strategies. Peng Huang, Marco Ceccagnoli, Chris Forman, D. J. Wu How do intellectual property rights affect entry into the market for complementary applications from independent software providers? The authors examine whether ownership of intellectual property rights (IPR) or downstream capabilities is effective in encouraging entry into markets complementary to a proprietary platform by preventing the platform owner from expropriating rents from start-ups. They study this question in the context of the software industry, an environment where evidence of the efficacy of IPR as a mechanism to appropriate the returns from innovation has been mixed. Entry is measured by an independent software vendor's (ISV's) decision to become certified by a platform owner and produce applications compatible with the platform. They find that ISVs with a greater stock of formal IPR (such as patents and copyrights), and those with stronger downstream capabilities (as measured by trademarks and consulting services) are more likely to join the platform, suggesting that these mechanisms are effective in protecting ISVs from the threat of expropriation. The insight for management: Careful use and distribution of intellectual property rights can encourage varying levels of participation in complementary product development. Paulo Maio What factors might explain dispersion in excess returns? The author introduces a scaled cash-flow factor that results from the interaction between cash-flow news and lagged values of market dividend yield or consumer price index inflation. The author finds that the scaled ICAPM performs well in general, and prices particularly well the momentum portfolios. It compares favorably with alternative asset pricing models in pricing both sets of equity portfolios. Furthermore, the scaled factor is decisive to account for the dispersion in average excess returns between past winner and past loser stocks. The insight for management: A time-varying cash-flow beta/price of risk provides a rational explanation for momentum. Fabio D'Andreagiovanni, Carlo Mannino, Antonio Sassano High-tech wireless networks such as the Internet, television, radio, and mobile communications depend on efficient network design. The authors provide a new approach to the problem of configuring a set of transmitters to provide service coverage to a set of receivers that is quicker to solve and better matches the situation in practice. The insight for management: New modeling techniques make configuring wireless networks faster and more accurate. Saed Alizamir, Francis de Véricourt, Peng Sun Conduct a quick assessment or an accurate one? This is a tough choice faced by triage nurses, first-level technical support agents, and employees making maintenance decisions. In diagnostic services, agents typically need to weigh the benefit of running an additional test and improving the accuracy of diagnosis against the cost of delaying the provision of services to others. The authors analyze how to dynamically manage this accuracy/congestion trade-off. The diagnostic process consists of a search problem in which the service provider conducts a sequence of imperfect tests to determine the customer's type. They find that the agent should continue to perform the diagnosis as long as his current belief that the customer is of a given type falls into an interval that depends on the congestion level as well as the number of performed tests thus far. This search interval should shrink as congestion intensifies and as the number of performed tests increases if additional conditions hold. The authors find that the optimal search interval shrinks when customer types are more ambiguous a priori, i.e., as the base rate approaches the value at which the agent is indifferent between type

Victor Manuel Bennett, Lamar Pierce, Jason A. Snyder, Michael W. Toffel When is a good thing a bad thing? Competitors who fight for customers may cut corners in order to get their business. Competition among firms yields many benefits but can also encourage firms to engage in corrupt or unethical activities. The authors suggest that competition can lead organizations to provide services that customers demand but that violate government regulations, especially when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, the authors show that increased competition is associated with greater inspection leniency, a service quality attribute that customers value but that is illegal and socially costly. Firms with more competitors pass customer vehicles at higher rates and are more likely to lose customers whom they fail, suggesting that competition intensifies pressure on facilities to provide illegal leniency. The authors also show that, at least in markets in which pricing is restricted, firms use corrupt and unethical practices as an entry strategy. The insight for management: Highly competitive environments may create perverse incentives along legal and ethical lines. Yina Lu, Andrés Musalem, Marcelo Olivares, Ariel Schilkrut How does the size of queues affect sales? The authors conduct an empirical study to analyze how waiting in line in the context of a retail store affects customers' purchasing behavior. The authors collected data at a deli counter via video recognition technology over a period of nine months and cross-referenced it with with point-of-sales data. They find that waiting in line has an escalating effect on purchases; longer lines are dramatically more discouraging than shorter ones. Interestingly, customers appear to focus mostly on the length of the queue, without adjusting enough for the speed at which the line moves—despite the fact that a single queue generally provides better service. An implication of this finding is that pooling multiple queues into a single queue may increase the length of the queue observed by customers and thereby lead to lower revenues, even though service is better. The authors also find that bargain-hunting customers are more willing to wait in lines; thus, the service strategy also has price implications. The insight for management: Those developing service strategies in services with queues must consider consumer psychology as well as operational efficiency. Gordon Phillips, Giorgo Sertsios The authors analyze the interaction of firm product quality and pricing decisions with financial distress and bankruptcy in the airline industry. They consider an airline's choices of quality and price as dynamic decisions that trade off current cash flows for future revenue. They examine how mishandled baggage, on-time performance, and pricing are related to financial distress and bankruptcy, controlling for the endogeneity of financial distress and bankruptcy. They find that an airline's quality decisions are differentially affected by financial distress and bankruptcy. Product quality decreases when airlines are in financial distress, consistent with financial distress reducing a firm's incentive to invest in quality. In contrast, during bankruptcy product quality increases relative to financial distress. In addition, the authors find that firms price more aggressively when in financial distress consistent with firms' trying to increase short-term market share and revenues. The insight for management: A firm's financial conditions may directly affect the quality and pricing of its services. Yingda Lu, Kinshuk Jerath, Param Vir Singh Online ratings, rankings, and reviews are prevalent on many retail sites. Do different opinions carry more or less weight with prospective buyers? The authors study the drivers of the emergence of “opinion leaders” in a networked community where users establish links to others, indicating their “trust” for the link receiver's opinion. This leads to the formation of a network, with some individuals becoming the opinion leaders. The authors find that, in the Epinions network, both the widely studied “preferential attachment” effect based on the existing number of links to an opinion giver and the number and quality of reviews written are significant drivers of new incoming trust links to a reviewer. However, over time the influence of the opinion leaders fades. The insight for management: The design of online review communities should consider the important influence of quality and quantity of opinions provided by opinion leaders. Michael Becker-Peth, Elena Katok, Ulrich W. Thonemann In the face of uncertainty, are supply chain managers rational? One of the main assumptions in research on designing supply contracts is that decision makers act in a way that maximizes their expected profit. The authors conduct a number of laboratory experiments that demonstrate that this assumption does not hold. Specifically, faced with uncertain demand, decision makers place orders that systematically deviate from the expected profit-maximizing levels. The insight for management: One must account for tastes; a behavioral model better explains contracting outcomes than contracts designed using the standard rational optimization model. Margaret Aksoy-Pierson, Gad Allon, Awi Federgruen How do competitive markets perform when customers can be segmented? The authors estimate the performance of a market that is partitioned into a finite set of market segments. They characterize the equilibrium behavior of this class of market models. The insight for management: Modeling approaches can lead to a better understanding of the performance in equilibrium conditions of segmented markets. Burhaneddin Sandıkçı, Lisa M. Maillart, Andrew J. Schaefer, Mark S. Roberts What is the price of patient privacy in the case of a liver donation waiting list? In the United States, end-stage liver disease patients join a waiting list and then make accept/reject decisions for transplantation as deceased-donor organs are offered to them over time. These decisions are largely influenced by the patient's prospect for future offers, which can be ascertained most accurately by knowing the entire composition of the waiting list. Under the current transplantation system, however, the United Network for Organ Sharing (UNOS), in an effort to strike a balance between privacy and transparency, publishes only an aggregated version of the waiting list. It is not clear whether the published information is good enough (compared with perfect information) to help patients make optimal decisions that maximize their individual life expectancies. The authors compare, in a clinically driven numerical study, the results with perfect and imperfect information. They assess the quality of the published imperfect information as measured by a patient's so-called price of privacy, measured in the opportunity loss in expected life days due to a lack of perfect waiting list information. The insight for management: The currently published partial information is nearly sufficient to eliminate this loss, resulting in a negligible price of privacy and supporting current UNOS practice. Dennis Vrecko, Thomas Langer Even though buy-and-hold (B&H) investment strategies can take the risk tolerance of an investor into account by specifying a suitable stock proportion, the outcome profiles of B&H strategies are restricted to a specific class of return distributions. For investors with particular risk preferences, further customization should thus provide additional value. The authors investigate the strength of preference for such customized distributions and draw conclusions about the demand for personalized investment products. In two experimental studies, 256 participants could adjust the return distribution of an initially chosen B&H investment by using an interactive software program. The authors also surveyed real investors at an investors fair to compare their preferences with those of the main pool of student subjects. The insight for management: Most investors make extensive use of the customization option, and many are willing to pay a substantial fee for this additional flexibility. Lin Liu, Anthony Dukes How many firms and how many products should be considered in evaluating potential suppliers? The authors evaluate a situation in which firms carry multiple products and consumers incur evaluation costs not only across firms but also within firms. Consumers judiciously decide the number of firms to include in their consideration sets as well as how many products from those firms. This decision depends on the relative trade-offs of evaluating an additional product and whether it is from a firm already included in the consideration set or from an entirely new firm. The composition of consumers' consideration set affects how firms compete in prices and in the number of products to offer. The authors find that firm differentiation can reduce firms' product lines and that within-firm evaluation costs have either a positive or a negative effect on firms' prices. The insight for management: Within-firm evaluation costs and across-firm evaluation costs are different constructs; the number of products that firms offer in equilibrium can exceed the socially optimal level if within-firm evaluation costs are significant. Turan G. Bali, Stephen J. Brown, K. Ozgur Demirtas

Cade Massey, Richard H. Thaler Should NFL teams trade for a top pick in the draft? There is so much financial pressure to make a good decision in the NFL draft; does that pressure create a decision-making bias among owners? The authors analyze the decision making of NFL teams during their annual player draft. They suggest that teams may overvalue the chance to pick early in the draft. Using archival data on draft-day trades, player performance, and compensation, the authors compare the market value of draft picks with the surplus value to teams provided by the drafted players. The insight for management: Consistent with psychological research, top draft picks are significantly overvalued in a manner that is inconsistent with efficient markets. Florian Ederer, Gustavo Manso Should managers exploit or explore? Previous research in economics shows that compensation based on the pay-for-performance principle is effective in inducing higher levels of effort and productivity (exploiting existing competencies). On the other hand, research in psychology argues that performance-based financial incentives inhibit creativity and innovation (exploring new opportunities). How should managerial compensation be structured if the goal is to induce managers to pursue more innovative business strategies? In a controlled laboratory setting, the authors find evidence that the combination of tolerance for early failure and reward for long-term success is effective in motivating innovation. The authors also find that the threat of termination can undermine incentives for innovation, whereas golden parachutes can alleviate these innovation-reducing effects. The insight for management: Pushing employees on production can stifle creativity and long-run innovation. Sander Hoogendoorn, Hessel Oosterbeek, Mirjam van Praag Can gender balance improve team performance? The authors estimate the impact of the share of women in business teams on the performance of undergraduate students in business studies who start up a venture as part of their curriculum. They intentionally manipulated the gender composition of teams and assigned students randomly to teams, conditional on their gender, and they find that teams with an equal gender mix perform better than male-dominated teams in terms of sales and profits. The authors look for an explanation for the mixed-gender team superior performance, including gender complementarities and differences in learning styles and conflict resolution, but they find no support for these reasons. The insight for management: There's no explaining why, but mixing the gender composition of teams might improve performance. C. Fritz Foley, William R. Kerr What is the impact of ethnic innovators, and thus immigration, on U.S. innovation? Over the 1975–1982 period, 81.3% of the names on U.S. patent applications were of Anglo-Saxon origin, but by the 2000–2004 period, this share had fallen to 68.0%. Much of this shift, and in fact much of the recent growth in the number of U.S.-based scientists and engineers, is a consequence of immigration. In the 2000 Census of Populations, immigrants constituted 25% and 48% of the U.S. workforce employed in science and engineering occupations with bachelor's and doctorate educations, respectively. The authors find that increases in the share of a firm's innovation performed by inventors of a particular ethnicity are associated with increases in the share of that firm's affiliate activity in countries related to that ethnicity. Ethnic innovators also appear to facilitate the disintegration of innovative activity across borders and to allow U.S. multinationals to form new affiliates abroad without the support of local joint venture partners. The insight for management: Ethnic diversity of research teams may spur cross-border collaboration and increased innovation. Simon P. Anderson, André de Palma Does an ad—any ad—catch the attention of the consumer? We've gone from being exposed to approximately 500 ads per day in the 1970s to as many as 5,000 per day today. Advertising competes for scarce consumer attention, so more profitable advertisers send more messages to break through the others' clutter. A cycle results: More messages in aggregate induce more “shouting to be heard,” which hurts all advertisers' profits. All advertisers would prefer for there to be less shouting, but none can afford to not get its message out in a loud and crowded advertising environment. In a market of “quiet whisperers,” all advertisers are better off through lower required advertising effort to get their messages heard. Given this tendency, increasing the cost of sending messages can make all advertisers better off by reducing the shouting. The insight for management: Advertising in a crowded market costs all participants who are trying to make their message heard. Ho-Yin Mak, Ying Rong, Zuo-Jun Max Shen The transportation sector holds the key to a greener environment, and there is a lot at stake. According to the U.S. Environmental Protection Agency, in 2003, the transportation sector was accountable for 29.6% of the total greenhouse gas (GHG) emissions in the United States. GHG emissions by transportation also grew the fastest among all economic sectors, accounting for 47% of the net increase in total emissions since 1990. Electric vehicles (EVs) have been proposed as a key technology to help cut down the massive GHG emissions from the transportation sector. Why aren't more EVs on the roads? Because of the limited capacity of batteries, typical EVs can travel for only approximately 100 miles on a single charge and require hours to be recharged. The industry has proposed a novel solution centered around the use of “swapping stations,” at which depleted batteries can be exchanged for recharged ones in the middle of long trips. The possible success of this solution hinges on the ability of the charging service provider to deploy a cost-effective infrastructure network, given only limited information regarding adoption rates. The authors develop optimization models that could aid the planning process for deploying a battery-swapping infrastructure. The insight for management: Analytical models can help estimate the potential impacts of battery standardization and technology advancements on the optimal infrastructure deployment strategy. Bin Hu, Izak Duenyas, Damian R. Beil Consider two buyers facing uncertain demands who need to purchase a common critical component from a powerful sole-source supplier. If the two buyers pool their demands and purchase from the supplier as a single entity, will they necessarily earn higher profits than they would if they purchased separately? The authors show that when a powerful supplier extracts profits from the buyers through optimal contract design, the demand variability reduction achieved by pooling can harm the buyers because it makes extracting profits easier for the supplier when pricing of the component is endogenous. The insight for management: Given a price, demand pooling is good for buyers, but if pricing is endogenous, demand pooling can be bad for buyers. Kenneth C. Lichtendahl Jr., Yael Grushka-Cockayne, Robert L. Winkler The authors consider two ways to aggregate expert opinions using simple averages: averaging probabilities and averaging quantiles. They examine analytical properties of these forecasts and compare their ability to harness the wisdom of the crowd. In terms of location, the two average forecasts have the same mean. However, the average quantile forecast is always sharper: It has lower variance than the average probability forecast. Even when the average probability forecast is overconfident, the shape of the average quantile forecast still offers the possibility of a better forecast. The insight for management: Averaging quantiles is a viable alternative and under some conditions may be more useful than averaging probabilities. Ajay Subramanian The author develops a model of competing firms in an industry to show how the distribution of firm qualities, moral hazard, and product market characteristics interact to affect firm size, managerial compensation, and market structure. He suggests that different determinants of product market competition have contrasting effects on firm size and managerial compensation. Although both firm size and managerial compensation increase with the entry cost, they increase with the elasticity of substitution if and only if firm size exceeds a high threshold but decrease if it is below a low threshold. The insight for management: Different determinants of competition indeed have contrasting effects. Sang-Hyun Kim, Brian Tomlin An ounce of prevention or a pound of cure? Should firms invest in failure prevention or recovery capacity? The authors examine technological systems that have unplanned outages with significant costs, a system outage if one or more of its subsystems fails, subsystem failures that occur simultaneously, and subsystem recovery that requires specific resources and capabilities that are provided by different firms. The authors find that, if recovery capacity investment is the only option, the firms in a decentralized setting overinvest in capacity, resulting in higher system availability but at a higher cost. They find that, if both investments can be made, the firms underinvest in failure prevention and overinvest in recovery capacity. The insight for management: Firms in a decentralized setting

Anat Bracha, Chaim Fershtman Can we design work incentives to spur employees to work both harder and smarter? Almost all jobs require a combination of cognitive effort and labor effort. The authors examine the effect that incentive schemes have on the chosen combination of cognitive and labor effort. They show that competitive incentives may induce agents to work harder but not necessarily smarter. The insight for management: It is difficult to think under pressure, and therefore competitive pressure has a negative impact on cognitive effort but a positive impact on labor effort. Yan Yang, Jeremy D. Goldhaber-Fiebert, Lawrence M. Wein What can be done about obesity? Because of the health and economic costs of childhood obesity, coupled with studies suggesting the benefits of comprehensive intervention (dietary changes, physical activity, and behavioral counseling), the U.S. Preventive Services Task Force recently recommended childhood screening and intervention for obesity beginning at age 6. The authors use a data set consisting of the body mass index of children up to age 18 and another data set containing the body mass index at ages 18 and 40 with the presence or absence of hypertension and diabetes to formulate the optimal biennial obesity screening thresholds from a societal viewpoint. The insight for management: Adult hypertension and diabetes can be minimized by focusing childhood obesity screening and treatment on older adolescents, but the optimal childhood obesity screening policies are as yet unclear. Xiao-Bai Li, Sumit Sarkar How can businesses leverage the plethora of data now available without threatening the privacy of their customers? The extensive use of information technologies by organizations to collect and share personal data has raised strong privacy concerns. For example, AOL drew fire for releasing 20 million search queries to the public, and Netflix had to cancel the second round of its movie recommendation competition because its customers were concerned about their privacy and being “reidentified”—that is, individually identified even though the personal information was stripped. The authors propose a method of clustering data so that data points within a group are similar in the nonconfidential attribute values, whereas the confidential attribute values within a group are well distributed. They also propose a “microperturbation” method for masking data that overcomes other clustering methods' inability to preserve important statistical properties such as the variance of attributes and the covariance across attributes. The insight for management: It is possible to distribute and gain insights from data without threatening the privacy of those who generated it by masking private details without reducing the information that can be gleaned from it. Anil Arya, Brian Mittendorf Do you clip coupons? In 2011, coupons alone accounted for $4.6 billion in consumer redemptions, and it is estimated that other postpurchase rebates have soared to $8 billion annually. Manufacturer-to-consumer rebates are a staple of modern supply chains. Such rebates are typically viewed as a means of price discrimination because of partial redemption by consumers. However, the proliferation of universally redeemed instant rebates suggests that the practice may be motivated by additional considerations. The authors suggest that consumer rebates can be particularly useful when a supply chain shows inefficiencies from retailers holding excess inventory to convey a lower willingness to pay in the future to undercut future wholesale prices. As a retaliatory consequence, the manufacturer sets high near-term wholesale prices. The “pull” promotion from consumer rebates encourages more timely retail sales and in doing so undercuts (but does not eliminate) the retailer's strategic inventories. Surprisingly, the authors find that the manufacturer, retailer, and consumers alike all benefit from the use of rebates, despite the fact that the manufacturer uses the rebates in self-interest and as a strategic weapon. The insight for management: The introduction of consumer rebates can serve as an enticement for retailers to sell, not just for consumers to buy. Julie Battilana, Tiziana Casciaro Keep your friends close and your enemies closer! The authors develop a theory of how members of an organization use the strength of ties in their network to overcome resistance to change. The authors propose that potentially influential “fence sitters” can be affected by strong ties to change agents. This cooptation increases the probability that the organization will adopt the change. However, ties to influential organization resistors to change work only for small changes. With bigger changes, the advantages of strong ties to resistors are weaker and may turn into liabilities that reduce the likelihood of change adoption. The insight for management: Team with resistors to stop a leak but not a tidal wave; team with change agents to create one. Marc Gruber, Dietmar Harhoff, Karin Hoisl How do individual-level characteristics of inventors affect the breadth of their recombination of different technologies to generate radical innovations? This ability has been viewed as the “holy grail” of innovation research for a century. The authors reviewed 30,550 European patents from 1,880 inventors and found that inventors with a scientific education are more likely to generate patents that span technological boundaries than those with an engineering degree, but a doctoral degree is associated with increased recombination breadth. The breadth of an inventor's technological recombinations diminishes with time since his formal education, but the differences between scientists and engineers persist over time. The insight for management: Broader and deeper education of inventors leads to broader creativity and recombination of ideas than a narrower engineering degree. David W. Lehman, Jungpil Hahn Does going for it on fourth down build momentum, or is the risk unwarranted? The authors reviewed 22,603 play-by-play decisions made by the 32 teams of the National Football League during the 2000–2005 regular season games. They evaluate how such risks affect slack (resources in excess of current performance), aspirations (based on past performance or on the performance of other organizations), and survival. Most importantly, such risk-taking behaviors seem to be affected by momentum. The insight for management: Risk taking builds on itself; better forecasts of future firm behaviors might be achieved by taking momentum into account. Stanley Baiman, Mirko S. Heinle, Richard Saouma How can a firm's capital budgeting policies balance investment efficiency against managers' consumption of perquisites? To limit the opportunities for managers to divert capital funds for private benefit, firms use their managerial accounting systems and audits of their capital projects. For example, these systems can easily uncover, and thereby preclude, the manager's diversion of capital funds from appropriate investments to private uses such as vacations or excess compensation. However, it is more difficult for these systems to distinguish between investments in necessary and unnecessary assets, provided that both fall within the general class of appropriate purchases. For instance, it may be difficult to detect that a manager is engaging in empire building (acquiring unnecessary hard assets such as research equipment, cars, or offices, or unnecessary soft assets such as staff and consulting services) from which he derives private benefits. Thus, at best the firm's accounting and auditing systems may mitigate a manager's misuse by constraining the set of assets into which he can divert capital funds for private benefit. For example, the private benefit of lavish offices is consumed over the time that the manager actually uses these offices (as compared to excess compensation or vacations, whose benefits are consumed immediately). The insight for management: Restricting investment to specific asset classes can reduce the private benefit to the manager to those consumed over time. L. C. G. Rogers, L. A. M. Veraart How do interbank obligations affect the fragility of our financial system? Over the last 10 or so years, there has been a growth of interest in the general phenomenon of the spread of bank failure through a network of interbank obligations. As the Asian banking crisis of the late 1990s and the more recent banking crisis of 2007–2008 have shown, the banking system generally can be very vulnerable to deterioration of assets, loss of liquidity, and loss of confidence. The authors study systemic risk in an interbank market, modeled as a directed graph of interbank obligations. The authors are able to analyze how failing banks might be rescued by consortia of other banks, establishing the important results that any consortium that has an incentive to rescue the failing banks also has the means and that any consortium of banks that would fail if default were allowed to spread would have an incentive to rescue if it had the means. The insight for management: Modeling may allow for reduced risks in and improved rescue mechanisms for our financial system. Jeffrey D. Shulman, Xianjun Geng What is the effect of add-on pricing on profitability and customer satisfaction? Consumers are often faced with fees for add-ons not included in the price of a base product (or service). For example,

Boris Maciejovsky, Matthias Sutter, David V. Budescu, Patrick Bernau Does team decision making have a positive impact on the decision making of individuals? Many important decisions are routinely made by transient and temporary teams, who perform their duty and disperse. Subsequently, team members often continue making similar decisions as individuals. The authors study how the experience of team decision making affects subsequent individual decisions in two seminal probability and reasoning tasks: the Monty Hall problem and the Wason selection task. Their results show that teams trade closer to the rational level, learn the solution faster, and achieve this with weaker, less specific performance feedback than individuals. Most importantly, the authors observed significant knowledge transfers from team decision making to subsequent individual performances taking place up to five weeks later. The insight for management: Exposure to team decision making has strong positive spillovers on the quality of individual decisions. Vikas Agarwal, Vyacheslav Fos, Wei Jiang Are there biases in financial self-reporting? The authors match the quarterly equity holdings of a complete list of 13F-filing hedge fund companies with five major commercial databases of self-reporting hedge funds between 1980 and 2008, and they find that funds initiate self-reporting after positive abnormal returns that do not persist into the reporting period. Termination of self-reporting is followed by both return deterioration and outflows from the funds. The propensity to self-report is based on benefits such as access to prospective investors and costs such as partial loss of trading secrecy and flexibility in selective marketing. The insight for management: Returns of self-reporting funds are higher than those of nonreporting funds using characteristic-based benchmarks; however, the difference is not significant using alternative choices of performance measures. Xinxin Li, Bin Gu, Hongju Liu What is the appropriate response to price competition in the face of changing demand? In October 2009, Walmart, Amazon, and Target cut their online prices for 10 best-selling items from $25 to $9, reportedly as loss leaders. Meanwhile, independent bookstores decided not to cut their prices as much to match their mega competitors. The authors develop a theoretical model to analyze the pricing strategies of competing retailers with different cross-selling capabilities when product demand changes. Their results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss-leader pricing on high-demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The insight for management: Major retailers will demonstrate greater price dispersion than boutique sellers because of cross-selling opportunities. Tat Chan, Chakravarthi Narasimhan, Ying Xie How do treatment effectiveness and side effects affect the prescription decision of a risk-averse physician? How can patient feedback help reduce the physician's uncertainty about effectiveness and side effects? The authors identify the impact of patient feedback on drug effectiveness and side effects by studying erectile dysfunction prescription choices based on self-reported reasons for switching. Their results show that the drugs Levitra and Cialis have higher mean effectiveness than the older drug Viagra, but physicians have higher uncertainty about the effectiveness of Levitra and the side effects of Cialis. The insight for management: Patient self-reporting is critical for detailing the effectiveness and side effects of new entrants competing with incumbent drugs. Sharon Belenzon, Tomer Berkovitz, Luis A. Rios How does financial development affect corporate groups in Europe? The authors investigate the effect of financial development on the formation of European corporate groups. They examine a comprehensive firm-level data set on European corporate groups in 15 countries and find that countries with less developed financial markets have a higher percentage of group affiliates in more capital-intensive industries. This relationship is more pronounced for young and small firms and for affiliates of large and diversified groups. The insight for management: Internal capital markets may, under some conditions, be more efficient than prevailing external markets, and this may drive group affiliation even in developed economies. John Morgan, Felix Várdy Can we count on your commitment? The authors show that the value of commitment is fragile in many standard games. When the follower faces a small cost to observe the leader's action, equilibrium payoffs are identical to the case where the leader's actions are unobservable. Applications of the result include classic standard Stackelberg–Cournot and differentiated product Bertrand games, as well as forms of indirect commitment. The insight for management: Weakening full rationality in favor of boundedly rational solution concepts such as quantal-response equilibrium restores the value of commitment. Joel Goh, Nicholas G. Hall How can projects with uncertain activity times and the possibility of expediting or crashing them best be managed? The authors established an objective that considers total completion time penalty plus crashing and overhead costs. They developed a robust optimization model that uses a conditional “value-at-risk” satisficing measure, and they developed decision rules for activity start time and crashing decisions that are designed to perform robustly against all possible scenarios of activity time uncertainty. They compare their procedures against the previously available Program Evaluation and Review Technique and Monte Carlo simulation procedures. Their computational studies show that, relative to previous approaches, their crashing policies provide a higher level of performance. The insight for management: New methods for project management under uncertain conditions can lead to higher success rates and lower project budget overruns. Chen Chen, Garud Iyengar, Ciamac C. Moallemi As highlighted by the financial crisis of 2007–2008, the measurement and regulation of systemic risk of an economy or a financial market are of particular interest. Can such systemic risk be identified and managed? Systemic risk refers to the risk of collapse of an entire complex system as a result of the actions taken by the individual component entities or agents that comprise the system. Systemic risk is an issue of great concern in modern financial markets and, more broadly, in the management of complex business and engineering systems. The authors propose an axiomatic framework for the measurement and management of systemic risk, and they define a broad class of systemic risk measures that accommodate a rich set of regulatory preferences. The authors suggest that the systemic risk can be decomposed into risk due to individual agents. The insight for management: Think locally to have global effect; externalities of individual agents' behaviors can be a driver in systemic risk in markets. Cuihong Li Manufacturers increasingly rely on suppliers to create value, reduce costs, and improve products or services. How can manufacturers balance the need for a diverse supply base and low costs? In the auto industry, most original equipment manufacturers (OEMs) create only 30%–35% of value internally. The author studies a buyer's sourcing strategy along two dimensions—the supply base design and the pricing mechanism—considering supplier competition and cost-reduction efforts. The supply base design concerns the number of suppliers (one or two) included in the supply base and the capacity to be invested in each supplier. The pricing mechanism determines the timing of the price decisions, with the buyer making price commitments before suppliers exert cost-reduction efforts that may be renegotiated afterward. The author finds that symmetric capacity investment in suppliers and low price commitments (more likely to be renegotiated) are effective in fostering supplier competition, whereas asymmetric investment and high price commitments (less likely to be renegotiated) are better at motivating supplier effort. A complementary relationship exists between the supply base design and pricing mechanism: A more symmetric supply base should be combined with lower price commitments, leading to more renegotiation opportunities. The insight for management: Three possible sourcing structures result depending on the emphases placed on pricing and competition: sole sourcing, symmetric dual sourcing, and asymmetric dual sourcing. Omar Besbes, Alp Muharremoglu How can demand be estimated when inventory runs out? The authors consider a “repeated newsvendor” problem in which the newsvendor does not have access to the underlying demand distribution. The authors compare the performance of two hypothetical vendors: One that has access to true demand and one that relies on sales data. The one that knows demand only exploits the knowledge; the one that does not must decide how much to “explore” (carry inventory to learn demand) and how much to exploit. The insight for management: A “lost sales indicator” that records whether demand was censored by inventory limits significantly reduces “exploration” and allows for “exploitation,” i.e., profit taking. <

In our monthly Management Insights we highlight—without using technical jargon—the insights and implications for practicing managers that are explored and developed in each article published in the issue. Joseph J. Gerakos, Joseph D. Piotroski, Suraj Srinivasan How are different types of interactions with U.S. markets by non-U.S. firms associated with compensation of employees? The authors find that there are higher levels of CEO pay, greater emphasis on incentive-based compensation, and smaller pay gaps with U.S. firms in non-U.S. companies that interact with U.S. markets. Using a sample of CEOs of UK firms and using both broad cross-sectional and narrow event-window tests, they find that capital market relationship in the form of a U.S. exchange listing is related to higher UK CEO pay; however, the effect is similar when UK firms have a listing in any foreign country, implying that a foreign listing effect is not unique to the United States. Product market relationships measured by the extent of sales in the United States by UK companies are associated with higher pay, greater use of U.S.-style pay arrangements, and a reduction in the U.S.–UK pay gap. The product market effect is incremental to the effect of a U.S. exchange listing, the extent of the firm's non-U.S. foreign market interactions, and the characteristics of the executive. The U.S.–UK CEO pay gap reduces in UK firms that make U.S. acquisitions. Furthermore, the firm's use of a U.S. compensation consultant increases the sensitivity of UK pay practices to U.S. product market relationships. The insight for management: Interactions with U.S. markets can drive foreign firms to U.S.-style compensation. Diwas KC, Bradley R. Staats, Francesca Gino Do we learn from our successes or from our failures? Learning from past experience is central to an organization's adaptation and survival. A key dimension of prior experience is whether an outcome was successful or unsuccessful. The authors investigate how individuals learn from their own past experiences with both failure and success and from the experiences of others. They use 10 years of data from 71 cardiothoracic surgeons who completed more than 6,500 procedures using a new technology for cardiac surgery. They find that individuals learn more from their own successes than from their own failures, but they learn more from the failures of others than from others' successes. They also find that individuals' prior successes and others' failures can help individuals overcome the inability to learn from their own failures. The insight for management: Individuals tend to learn from their own successes and others' failures. Ioana Chioveanu, Jidong Zhou Buy one, get one free or half off? Price frames, or ways to present price information, are used regularly in retail to attract buyers. Frame choices affect the comparability of price offers and may cause consumer confusion and lower price sensitivity. The authors find that firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. Furthermore, the authors suggest that an increase in the number of competitors induces firms to rely more on frame complexity. The insight for management: Where there is confusion, there is profit; confusing price frames reduces consumer price comparisons, which may boost industry profits and lower consumer surplus. Brian Rubineau, Roberto M. Fernandez How does referral recruitment contribute to job segregation? The importance of networks in labor markets is well known. Such networks create a job-segregating effect in organizations. The segregation is attributed to the homophilous nature of contact networks, the tendency of individuals to associate and bond with similar others. The authors investigate the role of referrers in the segregating effects of network recruitment. They show that referrer behaviors can segregate jobs beyond the effects of homophilous network recruitment. They also show that referrer behaviors can also mitigate most, if not all, of the segregating effects of network recruitment. The insight for management: Referrers can provide opportunities for organizations to influence the effects of network recruitment. Tinglong Dai, Kinshuk Jerath How do inventory level decisions affect the effort levels of a salesforce? Ideally, the salesforce generates demand to match the inventory stocked because if demand is below inventory level, the firm incurs a cost for the leftover inventory, and if demand is above inventory level, the salesperson's effort is wasted. If the stock of inventory is insufficient, the salesforce is demotivated, and it is typically not possible to keep track of demand that was, or could have been, realized but was not fulfilled due to lack of inventory. The authors find that it may be optimal for the firm to stock more than the first-best inventory level, because this enables the firm to obtain a more precise indicator of the salesperson's effort. The possibility of stockouts due to limited inventory also leads to several counterintuitive results, including the following: (i) relative to when stockouts are not considered, it may be optimal for the firm to pay a higher bonus even though limited inventory constrains sales; (ii) as inventory becomes more expensive, thereby forcing the firm to lower its inventory, the firm may nevertheless pay the agent a higher bonus; and (iii) if there is a lower probability that the agent's effort exertion leads to high demand, rather than lowering inventory due to the lower sales potential, the firm may increase inventory. The insight for management: Inventory levels and salesforce compensation strategies interact. Yufei Ren, Rachel Croson How can overconfidence adversely affect decision quality in supply chain and inventory settings? The authors test whether orders deviate from optimal when individuals are overconfident (in particular, overprecise) in their estimation of order variation. They find that overprecision explains almost one-third of the observed ordering mistakes and that the effect of overprecision is robust to learning and other dynamic considerations. They propose a new technique to exogenously reduce overprecision. They find that participants demonstrate less overprecision and less bias than those who don't use the proposed technique. The insight for management: Overconfidence creates errors in supply chain ordering and inventory management that can be remedied through new techniques. David Goldreich, Hanna Hałaburda Are large menus better than small menus? Recent literature argues that individuals' apparent preference for smaller menus can be explained by their behavioral biases or informational limitations. These explanations imply that absent behavioral or informational effects, larger menus would be objectively better. However, in an important economic context—401(k) pension plans—the authors find that larger menus are objectively worse than smaller menus, as measured by the maximum Sharpe ratio achievable. The authors propose a model in which menu setters differ in their ability to preselect the menu. We show that when the cost of increasing the menu size is sufficiently small, a lower-ability menu setter optimally offers more items in the menu than a higher-ability menu setter. Nevertheless, the menu optimally offered by a higher-ability menu setter remains superior. The insight for management: There is a negative relation between menu size and menu quality; smaller menus are better than larger menus. Manel Baucells, Emanuele Borgonovo How does uncertainty affect investing decisions? In evaluating opportunities, investors wish to identify key sources of uncertainty. The authors propose a new way to measure how sensitive model outputs are to each probabilistic input (e.g., revenues, growth, idiosyncratic risk parameters). The authors propose a metric that robustly measures the sensitivity of decisions to such uncertainty. The insight for management: New approaches improve the ability to measure the sensitivity of decisions to uncertainty. Oya Altıkılıç, Vadim S. Balashov, Robert S. Hansen Contrary to the common view that analysts are important information agents, intraday returns evidence shows that announcements of analysts' forecast revisions release little new information, on average. Further cross-sectional evidence from returns around the announcements confirms that revisions are virtually information free. Daily announcement returns used in the literature appear to overstate the analyst's role as information agent, because forecast announcements are often issued directly after reports of significant news about the followed firm. The evidence reveals a sequential relationship between events and news and forecast revisions indicative of analyst piggybacking, not prophecy. The insight for management: Price reactions to analysts' reports reveal little new information. Ling Cen, Kalok Chan, Sudipto Dasgupta, Ning Gao How does industry diffusion affect stock returns? Within an industry, stock returns of larger firms lead those of smaller firms, suggesting an intraindustry information diffusion process. Most industry leaders, however, have business segments in other “minor-segment” industries, whereas most small firms are pure players operating in one industry only. If investors cannot filter out the irrelevant information from the leaders' minor segments, the pure players will be mispriced due t

Gary Bolton, Ben Greiner, Axel Ockenfels I like you, and you like me; does that make us both good? On eBay and in other online marketplaces, such reciprocity in feedback is common. Unfortunately, these reciprocal comments can distort the reliability of reputation information in a market, hampering trust and trade efficiency. The authors examine the feedback patterns observed on eBay and other platforms and demonstrate how reciprocity can be managed by changes in the way feedback information flows through the system. They suggest information management strategies that lead to more accurate reputation information, more trust, and more efficient trade. The insight for management: Managing the design of market trust systems can improve the veracity of information and improve market performance. Benjamin A. Campbell How should entrepreneurs be rewarded to maximize their effort levels? Entrepreneurs value both pecuniary and nonpecuniary aspects of their work. The author studies the effects of employee experience at a start-up on earnings across an individual's career in the context of California's semiconductor industry. The author finds that start-up experience has a persistent positive effect on earnings that extends outside the entrepreneurial environment. The insight for management: Entrepreneurs experience a short-term dip in income after joining a start-up but generally catch up after four quarters. Vivek F. Farias, Srikanth Jagabathula, Devavrat Shah How should individual choice be modeled? There are many approaches to modeling individual decisions, but real-world implementations of many of these models face the formidable stumbling block of simply identifying the “right” model of choice to use. A particular challenge is in fine-grained predictions; one must contend with the risks of mis-specification and overfitting/underfitting. With limited data on how consumers actually make decisions, how may one predict revenues from offering a particular assortment of choices? The authors outline an approach in which the data automatically select the right choice model for revenue predictions. With a data set consisting of automobile sales transaction data from a major U.S. automaker, the authors find a 20% improvement in prediction accuracy over state-of-the-art benchmark models, which can result in a 10% increase in revenues from optimizing the offer set. The insight for management: The authors make progress toward “automating” the crucial task of choice model selection for improved choice prediction. Christine Kaufmann, Martin Weber, Emily Haisley Form or function: Do graphical displays have an effect on an individual's appetite for risk? Financial professionals have a great deal of discretion concerning how to relay information about the risk of financial products to their clients. The authors introduce a new risk tool to communicate the risk of investment products, and they examine how different risk-presentation modes influence risk-taking behavior and investors' recall ability of the risk-return profile of financial products. They analyze four different ways of communicating risk: (i) numerical descriptions, (ii) experience sampling, (iii) graphical displays, and (iv) a combination of these formats in the “risk tool.” Participants receive information about a risky fund and a risk-free fund and make an allocation between the two in an experimental investment portfolio. Greater risky allocations in the risk tool condition are associated with decreased risk perception, increased confidence in the risky fund, and a lower estimation of the probability of a loss. In addition to these favorable perceptions of the risky fund, participants in the risk tool condition are more accurate on recall questions regarding the expected return and the probability of a loss. The insight for management: Presenting fund performance graphically changes the perception of the desirability of the investment. Aharon Ben-Tal, Dick den Hertog, Anja De Waegenaere, Bertrand Melenberg, Gijs Rennen What methodological approach is most appropriate in problems in inventory control or finance that involve terms containing moments of random variables such as expected utility? The authors suggest a robust optimization methodology that extends the results to problems that are nonlinear in the optimization variables. The insight for management: An advanced methodology has been developed that can be used in several applications, including an asset pricing example and a numerical multi-item newsvendor example. Daniel R. Cavagnaro, Richard Gonzalez, Jay I. Myung, Mark A. Pitt How are stimuli selected for discriminating among models of risky choice? The authors propose an approach, called adaptive design optimization, that adapts the stimulus in each experimental trial based on the results of the preceding trials. Collecting data to discriminate between models of risky choice requires careful selection of decision stimuli. Models of decision making aim to predict decisions across a wide range of possible stimuli, but practical limitations force experimenters to select only a handful of them for actual testing. The insight for management: A new approach for adaptively selecting stimuli for problems of expected utility, weighted expected utility, original prospect theory, and cumulative prospect theory has been developed. Xiaoqun Wang, Ken Seng Tan What modeling approach can be used for pricing and hedging of complex financial instruments? Quasi–Monte Carlo (QMC) methods are important numerical tools in the pricing and hedging of complex financial instruments. The effectiveness of QMC methods crucially depends on the discontinuity and the dimension of the problem. The authors show how the two fundamental limitations can be overcome in some cases. They first study how path-generation methods (PGMs) affect the structure of the discontinuities and what the effect of discontinuities is on the accuracy of QMC methods. The insight is that the discontinuities can be QMC friendly (i.e., aligned with the coordinate axes) or not, depending on the PGM. The PGMs that offer the best performance in QMC methods are those that make the discontinuities QMC friendly. The structure of discontinuities can affect the accuracy of QMC methods more significantly than the effective dimension. This insight motivates the authors to propose a novel way of handling the discontinuities. The basic idea is to align the discontinuities with the coordinate axes by a judicious design of a method for simulating the underlying processes. Numerical experiments demonstrate that the proposed method leads to dramatic variance reduction in QMC methods for pricing options. The insight for management: Advances in quasi–Monte Carlo methods can reduce variance in pricing options. Robert Zeithammer, Raphael Thomadsen How should prices and quality levels be set when customers desire variety? The preference for variety is a consequence of diminishing marginal utility for repeated experiences with the same product. The authors find that consumer variety seeking can either soften or intensify price competition, depending on the difference in firm qualities and the strength of consumer preference for variety. When the qualities are similar (or the consumer preference for variety is strong), prices and profits are higher than would be obtained in the absence of variety seeking. On the other hand, if qualities differ enough (or the preference for variety is weak), stronger preferences for variety are associated with more intense price competition and lower profits. When firms set their qualities before competing on price and the range of feasible qualities is restricted such that variety seeking softens competition, competing firms choose to minimally differentiate themselves from each other. The insight for management: The preference for variety can drive the firms to offer multiunit discounts, and the greater price flexibility from these discounts does not necessarily reduce profits relative to simple unit pricing. John Thanassoulis How should executive contracts be structured to avoid short-termism behavior that can cause excessively risky behavior? The author outlines a new theory linking industry structure to optimal employment contracts and executive short-termism. Firms hire their executives using optimal contracts derived within a competitive labor market. To motivate effort, firms must use some variable remuneration. Such remuneration introduces a myopia problem: An executive would wish to inflate early expected earnings at some risk to future profits. To manage this short-termism, some bonus pay is deferred. Eventually, the optimal contract jumps from one deterring myopia to one tolerating myopia. The insight for management: Modeling helps structure executive pay to balance short-termism yet still create incentives for performance. Fernando F. Suarez, Michael A. Cusumano, Steven J. Kahl Many technology product providers such as SAP and Oracle increasingly rely on service revenues as part of their business models. Is this shift good or bad for these companies? One possible explanation is that they turn to services to generate additional profits when their product industries mature and product revenues and profits decline. The authors explore this assumption by examining the role of services in the financial performance of firms in the prepackaged software products industry from 1990 to 2006. They find

Starting this year, two best paper awards were established for manuscripts published in the 2010–2012 volumes of Management Science. One is sponsored by the Information Systems Society of INFORMS for the manuscript that is deemed most deserving for its contribution to the theory and practice of information systems. The second is sponsored by the Manufacturing and Service Operations Management Society of INFORMS for the manuscript judged to be most deserving for its contribution to the theory and practice of operations management. For each award, finalists were selected from among a set of nominated papers by the editorial board of Management Science, and the winners were selected by a vote of the society members. The journal is deeply proud that each of these manuscripts appeared in our pages, and we congratulate each of these authors for their fine piece of scholarship.

Leukocyte elastase is a marker of inflammation. Previously, a relationship was found between the severity of mental disorders in patients and elastase-like activity of blood plasma. The effect of various neurotropic drugs on leukocyte elastase activity was analyzed in an in vitro experiment. We revealed an inhibitory effect of the benzodiazepine tranquilizers diazepam and bromodihydrochlorophenylbenzodiazepine and immunomodulators aminodihydrophthalazinedione and diclofenac on the plasma elastase-like activity of healthy donors and pure human neutrophil elastase. The antipsychotics chlorpromazine and alimemazine, as well as the nootropic vinpocetine increased elastase-like activity in a dose-dependent manner. The activating effect of chlorpromazine and vinpocetine, but not alimemazine, was reproduced in neutrophil elastase. We hypothesized that these drugs can affect the development of inflammatory reactions in the complex therapy of mental disorders.

The article explores the mobility of undergraduate students at three selected higher education institutions in three different countries. Students, who participated in the analysis, have been involved in mobility programmes over the last six years (between 2006 and 2011) at the following higher education institutions: Germany – Duale Hochschule Baden Wurttemberg Karlsruhe, Norway – University of Tromso and Slovenia – Faculty of Management. The empirical research was conducted on a population of 3,539 undergraduate students, who completed part of their academic curriculum in the host country during the period under investigation. The purpose of this article was to examine the motivational factors influencing the decision for an international mobility destination and the expectations of students on a sample of 288 (mobile) undergraduates. The research has shown that the majority of students of the selected educational institutions chose mobility because of the international experience, that gender has an impact on the duration of a student mobility stay and that in the majority of cases the students are satisfied with the mobility program.