Cooling-off Period Research Articles

Cooling Off in Negotiations: Does it Work?

Negotiations frequently end in conflict after one party rejects a final offer. In a large-scale internet experiment, we investigate whether a 24-hour coolingoff period leads to fewer rejections in ultimatum bargaining. We conduct a standard cash treatment and a lottery treatment, where subjects receive lottery tickets for several large prizes - emulating a high-stakes environment. In the lottery treatment, unfair offers are less frequently rejected, and cooling-off significantly reduces the rejection rate further. In the cash treatment, rejections are more frequent and remain so after cooling-off. This treatment difference is particularly pronounced for subjects with lower cognitive abilities.

Developer initiation and social interactions in OSS: A case study of the Apache Software Foundation

Maintaining a productive and collaborative team of developers is essential to Open Source Software (OSS) success, and hinges upon the trust inherent among the team. Whether a project participant is initiated as a committer is a function of both his technical contributions and also his social interactions with other project participants. One's online social footprint is arguably easier to ascertain and gather than one's technical contributions e.g., gathering patch submission information requires mining multiple sources with different formats, and then merging the aliases from these sources. In contrast to prior work, where patch submission was found to be an essential ingredient to achieving committer status, here we investigate the extent to which the likelihood of achieving that status can be modeled solely as a social network phenomenon. For 6 different Apache Software Foundation OSS projects we compile and integrate a set of social measures of the communications network among OSS project participants and a set of technical measures, i.e., OSS developers' patch submission activities. We use these sets to predict whether a project participant will become a committer, and to characterize their socialization patterns around the time of becoming committer. We find that the social network metrics, in particular the amount of two-way communication a person participates in, are more significant predictors of one's likelihood to becoming a committer. Further, we find that this is true to the extent that other predictors, e.g., patch submission info, need not be included in the models. In addition, we show that future committers are easy to identify with great fidelity when using the first three months of data of their social activities. Moreover, only the first month of their social links are a very useful predictor, coming within 10 % of the three month data's predictions. Interestingly, we find that on average, for each project, one's level of socialization ramps up before the time of becoming a committer. After obtaining committer status, their social behavior is more individualized, falling into few distinct modes of behavior. In a significant number of projects, immediately after the initiation there is a notable social cooling-off period. Finally, we find that it is easier to become a committer earlier in the projects life cycle than it is later as the project matures. These results should provide insight on the social nature of gaining trust and advancing in status in distributed projects.

Re-Conceptualizing “Cooling-Off Periods” in Serial Homicide

Cooling-off periods have been described as the state of returning to the offender’s usual way of life between homicides (Burgess, 2006) and are a crucial factor in defining serial homicide (Douglas, Ressler, Burgess, & Hartman, 1986). If the clinical aspect referring to the offender’s emotional and motivational state is removed, these episodes can be aptly termed time intervals between homicides. Factors such as geography, victim selection, and the offender’s level of social involvement may instead serve as more appropriate starting points for studying this concept. In the present study, these factors were examined using 16 series containing 90 time intervals with a reported median interval length between events of 34.5 days.

Audit Partner Rotation and Financial Reporting Quality

SUMMARY: Audit partner rotation has received considerable attention globally and in the U.S. since the Sarbanes-Oxley Act of 2002 accelerated the rotation period from seven to five years and expanded the cooling-off period from two to five years. However, research on the effects of audit partner rotation on financial reporting quality in the U.S. is virtually non-existent, largely due to the absence of publicly available information on audit partners. Using a novel approach to determine audit partner rotation, we investigate the effect of rotation on financial reporting quality in the U.S. We find evidence of lower financial reporting quality following an audit partner change. Specifically, we find lower financial reporting quality during the first two years with a new audit partner relative to the final two years with the outgoing partner. We find the lower financial reporting quality to be more prevalent for larger clients. Further analyses suggest the initial year post-rotation presents audit challenges for Big 4 partners, which persist for at least three years for non-Big 4 partners. Audit challenges also appear greater for city-level non-industry specialist auditors and smaller audit offices. We discuss the implications of our results for regulators, policymakers, and the profession at large.

Revolving door lobbyists and interest representation

Although experience inside the halls of power afford lobbyists valuable political, policy and procedural skills that can improve the deliberative process, it also gives them privileged access to former employers that others do not have. Washington’s revolving door evokes legitimate ethical concerns, such as when former legislators resign their seats to take lucrative jobs representing the very industries they regulate. However, social scientists know surprisingly little about the revolving door beyond such sensational, albeit important, cases. To shed more light on the broader phenomenon, we systematically explore the revolving door on a large scale to answer a simple question: Do revolving door lobbyists represent different interests than conventional lobbyists? If, as revolving door proponents imply, these lobbyists work on behalf of organized interests solely for their specialized subject-matter expertise, then we would expect them to represent clienteles that are no different than conventional lobbyists. Alternatively, if they represent a wider variety of economic interests than conventional lobbyists then we assume they are hired more for their ability to get a foot in the door than to serve as policy expert adjuncts to government. Using evidence from original data on the professional biographies of roughly 1600 registered lobbyists – which we link to data from almost 50 000 quarterly Lobbying Disclosure Act reports – we expose a significant transparency loophole in the law. Because lobbyists are not required to continuously disclose their ‘covered official’ status – the statutory definition of revolving door – periodic lobbying disclosure reports effectively hide the revolving door from public scrutiny. Instead, we rely on our more comprehensive information on lobbyists’ connections to previous employers to more accurately measure the size and scope of Washington’s revolving door, and to investigate how these connections affect which interests they represent. We find that revolving door lobbyists have worked mostly in Congress, tend to work as contract lobbyists rather than in-house government-relations staff and are more likely to specialize in lobbying for appropriations earmarks. Then, after controlling for a variety of lobbying specializations, we show that former members of Congress are no more likely than other lobbyists to attract a more economically diverse set of clients than their conventional-lobbyist counterparts. However, congressional staffers who had worked their way up the organizational ladder on Capitol Hill do. We infer that well-connected congressional staffers who spin through the revolving door sell access to key decision makers in Congress, not their industry- or issue-specific technical or substantive expertise. Simply, the revolving door problem is not limited to a handful of headline-catching former legislators, is much bigger than the existing lobbying disclosure regime reveals and – most importantly – significantly distorts the representation of interests before government. The practical implications are clear: lobbying transparency rules, cooling-off periods and other restrictions are insufficient disincentives. Interest group demand for access is simply too strong. We advocate enhancing lobbying transparency by expanding the statutory definitions of lobbying activities, requiring lobbyists to disclose more details about government employment and shifting some of the disclosure burden to democratically accountable government officials themselves.

Payday Lending Regulation

To date the debate over payday lending has focused on whether access to such lending is on net beneficial or harmful to consumer welfare. However, payday loans are not one product but many, and different forms of lending may have different welfare implications. The current diversity in payday lending stems from the diverse ways in which states have regulated the industry. This paper attempts to quantify the effects that various regulatory approaches have had on lending terms and usage. Using a novel institutional dataset of over 56 million payday loans, covering 26 states for nearly 6 years, I find that price caps tend to be strictly binding, size caps tend to be less binding, and prohibitions on simultaneous borrowing appear to have little effect on the total amount borrowed. Minimum loan terms affect loan length while maximum loan terms do not. Repeat borrowing appears to be negatively related to rollover prohibitions and cooling-off periods, as well as to higher price caps. Several states have used law changes to sharply cut their rate of repeat borrowing. However, this process has been disruptive, leading to lower lending volumes and, in at least one case, higher delinquency.

Have thirteen beggars been killed by a serial killer?

Introduction: From 2010-2011, several murders of beggars were reported from Colombo and suburb. The motive of such killings was not obvious and some parties suspected an attack targeting beggars by an organized group. Objective: To analyse the medico-legal aspects of the series of killing. Methods: Data of beggars who had been killed, serially, under similar circumstances in Colombo and suburbs were collected from January 2010 to December 2011. Results: There were 14 murders (12 males) in 9 towns. The bodies were left on the location of killing without being moved. The causes of death had been blunt force trauma to head. No suspects were arrested. Sole eye witness confirmed the presence of ‘rituals’ and ‘cooling-off period’ in suspect. In November 2011, a beggar was arrested while attempting to kill another beggar when the latter was a sleep. The suspect was produced for medico-legal examination and later referred to a Psychiatrist. He was diagnosed to have anti-social traits. On a subsequent day, he admitted that he had murdered altogether 14 beggars. He had shown all the crime scenes to the investigators. He was sent for inward psychiatric treatment and is awaiting trial. Conclusions: Usually serial killers are males with past criminal records who kill strangers, perform ‘rituals’, leave ‘signature’, display the dead bodies and remove souvenirs. All above characteristics except the last two were evident in this case. Fourteen independent, planned murders with potential “cooling-off periods” indicate that the suspect could be the highest 'potential serial killer' in Sri Lanka. The importance of the establishment of a National Criminal Investigating Centre is suggested to investigate such unsolved crimes. Galle Medical Journal, Vol 18: No. 2, September 2013;Page 17-21 DOI: http://dx.doi.org/10.4038/gmj.v18i2.6196

Heat capacity estimation of the thermal buffer mass for temperature control of satellite electronic components in periodic operation

In the present study, the analytical method to design the thermal buffer mass (TBM) used to control the temperatures of satellite electronic components that operate periodically is investigated. In the energy equation of the system composed of component and thermal control modules, the radiation heat-discharge term, which is a biquadratic equation of temperatures, is linearized, and approximate analytical solutions that guarantee minimum errors under physically valid conditions are obtained. An equation between the dimensionless thermal capacity of TBM and radiator area is derived for arbitrary design input data from the approximate solution. These two parameters are related almost linearly in the examined range of this study. Stable periodicity of temperatures is insured when thermal balance is maintained between the net thermal energy accumulated in the system during heating period and the net thermal energy discharge to space during cooling-off period. From the thermal balance, restrictive conditions for the thermal capacity of the TBM and the area of radiators are drawn. If the thermal capacity of the TBM increases, resulting difference in temperature profiles during heating phase will be very small. However, cooling rate during the component off-duty phase will be slow down, and this will reduce the duty cycle of the compensation heater. Finally, the analytic equation for mass optimization is presented to minimize the system mass.

Races, Rushes, and Runs: Taming the Turbulence in Financial Trading

Many participants, regulators, and observers of commodity and security markets have a sense that something in recent years has gone awry: that the explosive growth of high-frequency digital trading is somehow excessive, costly, unfair, and/or destabilizing. Several ideas for changing the rules have been discussed. Without a coherent explanation of exactly what is wrong, however, it can be very difficult to develop a promising remedy. The object of this paper is to offer one such explanation: that the digitization of the trading infrastructure, in combination with ubiquitous but fleeting information asymmetries, has stimulated a dramatic expansion of racing. By racing I mean the wasteful expenditure of resources in a contest to trade ahead of other market participants; that is, racing – like its cousin, queuing – is an example of a directly unproductive profit-seeking (DUP) activity whose costs erode the gains from trade that otherwise would be available to participants in the market. The paper also offers a specific remedy: the optional use of randomizing temporal buffers in the order flow. By slightly slowing the pace of trading, such buffers will allow market-data dissemination processes to saturate (i.e., will allow information asymmetries to dissipate) a little bit faster than order execution processes, so that price discovery and trading can operate more efficiently in an environment with more symmetrical information. By decoupling order flow from market-data flow, this remedy should also help reduce the likelihood of chaotic feedback instabilities in automated trading markets. Racing and its associated costs have received a good deal of attention in other contexts, particularly the race-to-fish in certain fisheries.2 Most analyses of financial markets appear to overlook the inefficiency of racing, however, in part due to a widespread misunderstanding of the efficient market hypothesis (EMH). Because the EMH emphasizes the speed with which information is incorporated into prices, many people tend to confuse speed with economic efficiency, thinking that faster must always be better. This is nonsense, of course. Real-world markets can always be made to operate a little faster, for a cost; but they can never be instantaneous. As the speed of trading approaches instantaneity, the cost will approach infinity. It follows that the optimum speed of trading – the efficient speed, in the ordinary economic sense of efficiency – must be finite. In order to have a complete understanding of what an economically efficient market looks like, therefore, we need to be able to explain what it means for a market to be trading too fast, as well as too slow. And we need to know what conditions might cause a market to operate at the wrong speed, and how such conditions might be corrected so that the market can find its optimum speed.A few notes at the outset: • First, this paper does not rely for explanatory value on panics, manias, nor any other psychological or behavioral phenomena. Perfectly rational homo economicus will engage in racing as described herein, as will computers unburdened with any emotional baggage. “Cooling-off periods” and other psychological remedies will not cure what is broken. • Neither does the racing hypothesis depend on allegations of cheating, conspiracies, underhandedness, unlawful or unfair or “toxic” behavior, nor anything that needs to be stamped out. This is not to deny that there may be multiple abusive practices at work, but they are not a necessary part of the explanation of why racing is inefficient and why it is a growing problem. This is important because it also means that even successful efforts to eliminate abuses will not solve the underlying problem. • This paper does not blame racing on any defect in regulation or market monitoring, and it contains no prescription for a regulatory fix. Rather, it alleges that an existing market imperfection has recently been severely aggravated by a technological change, the digitization of trading systems, and that the adverse effects can largely be mitigated by another technological change, the voluntary use of temporally buffered trading systems in parallel with real-time trading systems. Market participants should find it in their interest to adopt this remedial technology; if they do not, there is no compelling reason for regulators to impose it on them. Competition will be the best test of theory. • Finally, this is not an empirical paper; it describes and illustrates the theory of racing and its application to financial markets. Additional theoretical, empirical, and experimental work will be needed to quantify the effects of racing and to test the proffered remedy. In the sections that follow, I hope at least to start that conversation.

Mandatory Audit Partner Rotation: Perceptions of Audit Quality Consequences

SUMMARY This paper summarizes our study, “An Examination of Partner Perceptions of Partner Rotation: Direct and Indirect Consequences to Audit Quality” (Daugherty et al. 2012). The study examines the perceptions of practicing audit partners with respect to mandatory partner rotation and cooling-off periods, in general, and how the more stringent partner rotation rules mandated by the Sarbanes-Oxley Act may negatively impact audit partners' quality of life at the expense of audit quality. The results suggest that mandatory partner rotation increases partners' (and other engagement team members') workloads, as well as the likelihood of partner relocation. In response to the Sarbanes-Oxley Act and the SEC's acceleration of mandatory partner rotation and extension of cooling-off periods, the partners participating in this study indicate that they would rather learn a new industry than relocate. Importantly, partners perceive that audit quality suffers from retraining, but not from relocating. Taken together, the study's results suggest that the partner rotation provisions create an unintended consequence—specifically an indirect, negative impact on audit quality.

The Impact of a Mandatory Cooling-off Period on Divorce

A mandated waiting period between a divorce filing and the issuance of the divorce decree has been adopted in many countries to reduce impetuous divorces and encourage reconciliation. In this paper, I estimate the impact of a compulsory waiting period on the divorce rate. Since 2004, South Korean local courts had been voluntarily adopting the cooling-off policy, and later it became a national law. To evaluate the impact of the policy, I exploit variation in the timing of the policy adoption across local courts. I find that the cooling-off policy significantly decreases the divorce rate, whereas there is no significant effect on the divorce filing rate.

Payday Lending Regulation

To date the debate over payday lending has focused on whether access to such lending is on net beneficial or harmful to consumer welfare. However, payday loans are not one product but many, and different forms of lending may have different welfare implications. The current diversity in payday lending stems from the diverse ways in which states have regulated the industry. This paper attempts to quantify the effects that various regulatory approaches have had on lending terms and usage. Using a novel institutional dataset of over 56 million payday loans, covering 26 states for nearly 6 years, I find that price caps tend to be strictly binding, size caps tend to be less binding, and prohibitions on simultaneous borrowing appear to have little effect on the total amount borrowed. Minimum loan terms affect loan length while maximum loan terms do not. Repeat borrowing appears to be negatively related to rollover prohibitions and cooling-off periods, as well as to higher price caps. Several states have used law changes to sharply cut their rate of repeat borrowing. However, this process has been disruptive, leading to lower lending volumes and, in at least one case, higher delinquency.

Do Former Audit Firm Partners on Audit Committees Procure Greater Nonaudit Services from the Auditor?

ABSTRACT:To address potential threats to auditor independence, the Sarbanes-Oxley Act of 2002 (SOX) requires the audit committee to pre-approve nonaudit services (NAS) procured from the auditor. However, the presence of a former audit firm partner (FAP) affiliated with the current auditor on the audit committee could undermine the audit committee's due diligence over the NAS pre-approval process. To alleviate such concerns, the Securities and Exchange Commission approved a three-year “cooling-off” period for appointing audit firm alumni as independent directors. Our analyses show that the presence of both affiliated and unaffiliated FAPs on audit committees does not lead to greater NAS procured from the auditor; rather, FAPs reduce NAS procured from the auditor. Moreover, NAS decline significantly following the appointment of FAPs to the audit committee. Further tests suggest the three-year cooling-off period may not be warranted and deserves further investigation. Our study raises important implications for regulators, policy makers, corporate boards, and future research.Data Availability: Data are publicly available from sources identified in the text.

Stackelberg in the lab: The effect of group decision making and “Cooling-off” periods

The Stackelberg duopoly is a fundamental model of sequential output competition. The equilibrium outcome of the model results in a first-mover advantage where the first-moving firm produces more output, and earns larger profits, relative to the second-moving firm. Huck, Müller, and Normann (2001) and Huck and Wallace (2002) test the Stackelberg duopoly in a lab setting and find that behavior is largely inconsistent with the equilibrium predictions of the model. We hypothesize that this inconsistency is a result of differences between the decision making environment implemented in the lab and firm environments in the field. In this paper, we experimentally investigate whether group decision making and a decision “cooling-off” period lead to more profit maximizing Stackelberg behavior in the lab. Specifically, we re-test the Stackelberg duopoly in the lab while implementing (i) two-person decision making groups, and (ii) a 10-min cooling-off period for second movers. In line with the previous studies, we find that second-mover response behavior is largely inconsistent with profit maximization. Furthermore, the implementation of groups and a cooling-off period has little effect on second-mover behavior. However, we find that group first-movers choose significantly lower output levels than individuals. While further from the equilibrium prediction, we show that these lower output choices by groups are more in-line with profit maximizing behavior, conditional on the non-profit maximizing response behavior of second-movers.

Written Notice of Cooling-Off Periods: A Forty-Year Natural Experiment in Illusory Consumer Protection and the Relative Effectiveness of Oral and Written Disclosures

For more than forty years, a standard tool in the consumer protection tool box has been the cooling off period. Federal statutes, state statutes, and federal regulations all oblige merchants to give consumers three days to rescind certain contracts. This paper reports on a survey of businesses subject to such cooling-off periods. The study has two principal findings. First, the respondents indicated that few consumers rescind their purchases. Thus, the study raises doubts about whether cooling-off periods benefit consumers or whether they provide only illusory consumer protection. Second, the study found that consumers who receive both oral and written notice of their rights are more likely to avail themselves of those rights than those who receive only written notices, and that the differences are statistically significant. Fifty-three percent of the Sellers who gave only a written notice and did not speak of the buyer’s right to cancel said buyers never cancelled, nearly double the percentage for sellers who did tell buyers (27%). Businesses that provided both oral in-person and written notices of the right to rescind were more than twice as likely to report that more than 1% of their customers cancelled contracts as those that provided only written notices. The article offers speculations about why cooling-off periods have been of such little value to consumers, and why oral and written notice combined have been more effective than written alone. Finally, the survey asked respondents about the cost of cooling-off periods. More than four-fifths of the respondents who answered the question reported that the right to cancel had cost them either nothing or very little. This contrasts with the vehement opposition of opponents of such rules when they were first adopted in the 1960s and 1970s.

Rotate back or not after mandatory audit partner rotation?

Many countries have implemented rules that require an audit partner to rotate off the audit of a specific client after a certain period of time in the belief that rotation will improve independence and will allow for a fresh look at the audit. The rules are either silent on whether or when a partner can rotate back or else they specify a cooling-off period after which the rotated-off partner can resume the audit. Using archival data from China, a country with a 2-year cooling-off period, this paper explores the determinants of whether the audit partner rotates back or not when the cooling-off period expires, and whether audit quality is weakened by the audit partner rotation-back practice. We find that the audit partner rotation-back practice can be explained by factors relating to switching costs, agency conflicts, client desirability, and the audit partner’s capacity constraint considerations. Interestingly, we find that clients suffering greater audit adjustments immediately prior to the expiration of the cooling-off period are more likely to be associated with subsequent audit partner rotation-back. Furthermore, we find that rotation-back partners tend to treat former clients more favorably than non-rotation-back cases using modified audit opinions as our proxy for audit quality. Overall, our findings offer preliminary explanations for and shed light on the consequences of rotation-back practice arising from mandatory audit partner rotation requirements and lend support to regulatory concerns on rotation-back practice among audit partners.

Cooling off and backing out: Understanding consumer decisions to rescind a product purchase

Consumers sometimes have the right to exit a sales contract during what is known as a cooling-off period. Sales process research generally does not address cases when consumers withdraw from sales contracts during this period. Since securing product sales involves substantial marketing and sales costs, a need exists to better understand not only consumer rescission decisions and their legal context but also the managerial implications of the cooling-off period. This exploratory qualitative study examines purchase rescinding and develops a conceptual model using timeshare as the context. Results suggest that rescission relates to a mismatch between product features and personal circumstances, post-purchase concerns about product value, reassessment of financial capability, reflections on sales presentations, and cautionary influences of reference groups.

The unintended consequence of doorstep consumer protection: surprise, reciprocation, and consistency

Cooling-off periods are universally employed in doorstep selling regimes. Paired with a right for consumers to withdraw from the contract, this legal instrument seeks to protect consumers against superior skilled and knowledgeable sellers thus restoring the balance of interests. According to prior literature, cooling-off periods also serve an economic function by moderating the abuse of market power, by mitigating problems of hidden characteristics, and by promoting consumer choice. If their drawbacks -- mainly the creation of consumer moral hazard and shifting of risk to the seller -- can be contained, cooling-off periods are hence supposed to yield efficiency gains. By thinking out of this box, the present paper showcases that cooling-off periods also establish the perverse incentive for the seller to increase consumer compliance to a level which outlasts the cooling-off period. I argue that inevitably occurring psychological factors and transaction costs from the cooling-off regime amplify each other, thus creating a hard-lock status-quo bias. Based on behavioural insights and transaction cost theory, I predict that an inefficiently high number of consumers will enter into a doorstep contract and that, at the same time, the number of cancelled contracts will be inefficiently low. Consequently, I propose to change the default inherent in current cooling-off regimes from presumed consent to presumed withdrawal in order to debias consumers' withdrawal decision.

An Examination of Partner Perceptions of Partner Rotation: Direct and Indirect Consequences to Audit Quality

SUMMARYUsing structured interviews and surveys of practicing audit partners, this study examines their perceptions with regard to mandatory partner rotation and cooling-off periods, and how recently enacted, more stringent rules, may negatively impact auditors' quality of life to the detriment of audit quality. Results suggest rotation, in general, increases partners' workloads and the likelihood of relocation. Additionally, results suggest that in response to accelerated rotation (and an extended cooling-off period), partners would rather learn a new industry than relocate. Importantly, partners perceive audit quality suffers from retraining, but not from relocating. Thus these results suggest an indirect, negative impact, and unintended consequence, of accelerated rotation/extended cooling-off periods on audit quality.Data Availability: The survey instrument is available upon request. Individual audit partner responses are confidential.

The Burden of Disclosure: Increased Compliance with Distrusted Advice

Professionals are often influenced by conflicts of interest when they have a personal, often material, interest in giving biased advice. Although disclosure (informing advisees about the conflict of interest) is often proposed as a solution to problems caused by such conflicts, prior research has found both positive and negative effects of disclosure. We present four experiments that reveal a previously unrecognized perverse effect of disclosure: While disclosure can decrease advisees’ trust in the advice, it simultaneously increases pressure to comply with that same advice. We demonstrate that the increased pressure results from advice recipients feeling obliged to help satisfy their advisors’ personal interests when those interests have been disclosed. Hence, disclosure can burden those it is ostensibly intended to protect. We show that the increased pressure to comply is reduced if (1) the disclosure is provided by an external source rather than from the advisor, (2) the disclosure is not common knowledge between the advisor and advisee, (3) a cooling-off period is introduced, or, (4) the advisee can make the decision in private.