Abstract
We study whether CEOs of private firms differ from other people with regard to their strategic decisions and beliefs about others’ strategy choices. Such differences are interesting since CEOs make decisions that are economically more relevant, because they affect not only their own utility or the well-being of household members, but the utility of many stakeholders inside and outside of the organization. They also play a central role in shaping values and norms in society. We expect differences between both groups, because CEOs are more experienced with strategic decision making than comparable people in other professional roles. Yet, due to the difficulties in recruiting this high-profile group for academic research, few studies have explored how CEOs make incentivized decisions in strategic games under strict controls and how their choices in such games differ from those made by others. Our study combines a stratified random sample of 200 CEOs of medium-sized firms with a carefully selected control group of 200 comparable people. All subjects participated in three incentivized games—Prisoner’s Dilemma, Chicken, Battle-of-the-Sexes. Beliefs were elicited for each game. We report substantial and robust differences in both behavior and beliefs between the CEOs and the control group. The most striking results are that CEOs do not best respond to beliefs; they cooperate more, play less hawkish and thereby earn much more than the control group.
Highlights
One aim of game theory is to understand the strategic decisions of important actors in the economy (e.g., Von Neumann and Morgenstern 1944; Tirole 1988)
The conclusion is that the difference in beliefs between CEOs and the CG is a robust finding in playing Defect (PD), and for this game, we can firmly reject null hypothesis 2
Robust standard errors in parentheses, *p < 0.1, **p < 0.05, ***p < 0.01 results. To explore whether these effects are likely to influence our results we have compared the behavior of control group CEOs with non-CEO control group members, but did not detect substantive differences in comparison with our baseline results
Summary
One aim of game theory is to understand the strategic decisions of important actors in the economy (e.g., Von Neumann and Morgenstern 1944; Tirole 1988). The study of CEOs’ strategic decisions is a natural choice given their prominent role in economic decision making as firm leaders whose actions have significant implications for other stakeholders (employees, suppliers, clients, and the local economy at large).. The study of CEOs’ strategic decisions is a natural choice given their prominent role in economic decision making as firm leaders whose actions have significant implications for other stakeholders (employees, suppliers, clients, and the local economy at large).1 They are likely to play an important role in transmitting values, norms and beliefs to other economic actors (e.g., employees, politicians and business partners).Their greater experience in strategic performance would suggest that they could differ in their strategic decision making from other people. People who are not CEOs make strategic decisions, but the type and impact of these decisions tend to be more limited, influencing the well-being of individuals living in the same household rather than a large number of external stakeholders
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