Mistaken Decisions Research Articles

Designing Pricing Contracts for Boundedly Rational Customers: Does the Framing of the Fixed Fee Matter?

The format of pricing contracts varies substantially across business contexts, a major variable being whether a contract imposes a fixed fee payment. This paper examines how the use of the fixed fee in pricing contracts affects market outcomes of a manufacturer-retailer channel. Standard economic theories predict that channel efficiency increases with the introduction of the fixed fee and is invariant to its framing. We conduct a laboratory experiment to test these predictions. Surprisingly, the introduction of the fixed fee fails to increase channel efficiency. Moreover, the framing of the fixed fee does make a difference: an opaque frame as quantity discounts achieves higher channel efficiency than a salient frame as a two-part tariff, although these two contractual formats are theoretically equivalent. To account for these anomalies, we generalize the standard economic model by allowing the retailer's utilities to be reference dependent so that the up-front fixed fee payment is perceived as a loss and the subsequent retail profits as a gain. We embed this reference-dependent utility function in a quantal response equilibrium framework where the retailer is allowed to make decision mistakes due to computational complexity. The key prediction of this behavioral model is that channel efficiency decreases with loss aversion for sufficiently Nash-rational retailers. Consistent with this prediction, the estimated loss-aversion coefficient is 1.37 in the two-part tariff condition, significantly higher than 1.27 in the quantity discount condition. At the same time, loss aversion dominates contract complexity in explaining the data. Lastly, we conduct a follow-up experiment to confirm the central role of loss aversion as a behavioral driver. In one condition, the retailer becomes less loss averse when we temporally compress the fixed fee payment and the realization of retail profits, which supports the loss aversion theory. In the other condition, the retailer's contract acceptance rate does not decline when we reward the manufacturer a higher cash payment for each experimental point earned, which rules out the competing hypothesis that the retailer rejects contract offers due to fairness concerns.

Marbury and the Constitutional Mind: A Bicentennial Essay on the Wages of Doctrinal Tension

harm-for example, injury to the interest in seeing that the law is obeyed-deprives the case of the concrete specificity that characterized those controversies which were 'the traditional concern of the courts at Westminster' (quoting Coleman v. Miller, 307 U.S. 433, 460 (1939) (Frankfurter, J., dissenting)) and that alone should therefore be regarded as properly justiciable today); Valley Forge Christian Coll. v. Citizens United for Separation of Church & State, 454 U.S. 464, 476 (1982) (asserting that standing limitations are part of the basic charter promulgated by the Framers of the Constitution at Philadelphia in 1787). Scholars, however, have predominantly rejected the Court's assumption. See, e.g., Richard Pierce, Is Standing Law or Politics?, 77 N.C. L. REv. 1741, 1765 (reviewing historical studies and concluding that historical support exists for the proposition that [Vol. 9 1:1 MARBURY AND THE CONSTITUTIONAL MIND perhaps to a historically grounded but now forgotten approach that coherently embodies some but not all aspects of the private-rights and specialfunctions models.246 If a project of this kind rendered Marbury wholly selfconsistent, then the historical truth would contain no disturbing dissonance, and subsequent misunderstandings could be characterized as simple errors. In offering these comments on the possible -fruits of historical inquiries, I do not pretend to judge Pfander's conclusions about the best reading of the 1789 Judiciary Act. Neither do I mean to project the success or failure of similar historical inquiries of the kind that I have sketched. I would insist, however, that the historicist project, as I have described it, could not imaginably satisfy the concerns of everyone who is unsettled by apparent contradictions in current constitutional doctrines. Even if successful in its own terms, historicism could not purge tensions from contemporary doctrine except on the contestable assumption that historical truths uniquely determine current legal meaning and constitutional validity. Full implementation of this assumption would have draconian effects unlikely to be acceptable to anyone. In a closely analogous case that much influences my modeling of historicism, self-styled believe that constitutional interpretation should in principle reflect the original understanding of relevant constitutional provisions.247 Nevertheless, nearly all originalists accept that at least some mistaken decisions must now be accepted on the basis of stare decisis.2 48 For those adopting this approach, originalism is not a complete constitutional theory, for its implementation requires the development of a normative theory of stare

Alien invasive species in China: their damages and management strategies

The impacts and invasion method of alien invasive species (AIS), and prevention and management of biological invasion are discussed. Biological invasion is becoming one of the most important factors threatening biodiversity and stability of various ecological systems in China. The impacts of these biological invasions are becoming a more serious problems with development and increase of global trade, transportation, international travel and ecological tourism. Harmful AIS often leads to irreversible species extinction, and results in substantial economic losses within managed and natural ecosystems, including agriculture, forestry, fishery and animal production. Newly invading weeds, insect pests and plant diseases frequently result in large-scale outbreaks and persistent use of chemical pesticides. Successful invasion and spread of some major insect pests and weeds in China were caused by man-made factors. These include decision mistakes and unintentional introduction of some plants, such as water hyacinth and alligator weed as pig food, irresponsible introduction actions taken by individual/group without any ecological concerns, and lack of rapid response mechanism for eradicating potentially AIS as soon as they appear. China is an agricultural country. Any biological invasion will be a "big-bomb" for our agriculture and inevitably result in ecological and economic losses in specific ecosystem and specific geographic regions. Prevention of biological invasion is an important aspect for safeguarding the state′s ecological safety. Development and researches should focus on building the state capacity, research capacity, and management capacity for addressing AIS problem. Based on the urgent situation of AIS in China, priority for research and action plans concentrate on: developing methods to identify the origin and pathways of invasive population; understanding the biological and ecological bases of AIS; developing environmentally friendly methods for control of AIS; developing environmental impact assessment and risk analysis methods for AIS; and developing methods for the recovery of habitats after control of AIS.

The strategic capacity-expansion model for a newsprint firm

It is pointed out that capacity expansion decisions in a capital-intensive industry determine to a large extent the fate of a firm, especially in an oligopolistic industry facing cyclical commodity markets where all firms endure the consequences of mistaken decisions, not only their own but also those of others. A model for helping firms with their capacity and production decisions in the newsprint industry in North America is presented. The model explicitly considers strategic interactions between firms in the industry, both in making short-term production decisions and in deciding on the expansion of capacity. The Nash equilibrium-solution concept is used to identify actions to be taken by the competing firms. Results validating the model are presented and an example of its use for strategic experiments is provided.< <ETX xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">&gt;</ETX>

The Role of the State, Ownership and Taxation in Transitional Economies*

Central to a transition from a command to a market economy is a radical transformation in the role of the state, involving both a withdrawal from economic decision-making and greater responsibilities for social welfare. Schematically, transition may be seen as consisting of three interrelated strands: first, the recasting of enterprises into institutions akin to firms in market economies and their disengagement from the state; second, an overhaul of the public finances and, particularly, the tax system; third, the institution of a social security system which does not rely on extensive price subsidies and secure lifetime employment. These three strands are closely intertwined because enterprises are the principal source of tax revenue and the main social welfare agencies in command economies. In the packages pressed on transitional economies the emphasis has been on a transformation of ownership of enterprises. Reform of the tax system and the institution of a social security system, in contrast, have not received the same attention. As is becoming increasingly obvious, a neglect of these is likely to expose the transition process to dangers and mistaken decisions which may seriously damage its prospects for success. In this paper we examine both the transformation of ownership in relation to the role of the state and tax reform in transitional economies.

Modeling Weed Distribution for Improved Postemergence Control Decisions

Broadleaf weeds apparently have patchy distributions within a field while POST control decisions are made assuming a regular spatial distribution. As a result, yield loss from weed competition may be overestimated, possibly leading to mistakes in choosing the optimal control treatment. Data on distribution of broadleaf weeds in 14 soybean fields were used in simulation experiments to investigate the potential for improving decision making with information about weed patchiness. The feasibility of modeling weed distribution in individual fields was also examined. Overall, the cost of assuming a regular distribution when making POST decisions was found to be low. Errors that occurred most often involved recommending more intensive control than was actually required, although in a few cases less intensive control was recommended. Error in the yield loss estimated for the uncontrolled population did not indicate the potential for a mistake in decision making for a field. Accurately modeling distribution of weeds within fields may be difficult as a result of correlations between distributions of individual species within a field and variation in distributions between fields.

Thoughts on Europe's future in space

Fearing that mistaken decisions may be made, the author offers his comments to clarify the future possibilities for Ariane, Hermes and Columbus. The decisions soon to be taken on the manned spaceflight programme will affect the future of the entire European space programme. The possibilities for air-breathing propulsion are also reviewed.

What we do not know about man-machine systems

The human part of man-machine systems is generally described in physicalistic terms, as if man was a machine. Although this is in good agreement with the tendency of behavioral science to emulate natural science, it is inherently wrong because it obscures where our knowledge is deficient. Physicalistic descriptions can only capture those aspects of man which submit to the metaphor of the machine, and must fail to account for the rest. This inadequacy of the physicalistic approach becomes gradually more clear, as the complexity of man-machine systems increases. Humans, unlike machines, are not designed explicitly as parts of man-machine systems, but have rather a plethora of capacities of which some are beneficial and some detrimental to the functioning of the system. Since we cannot simply add to the physicalistic descriptions, the alternative is to describe man on his own premises—essentially a psychological description with full recognition of the characteristics of man—and then later combine the physicalistic description of the machine with the psychological description of man. This approach makes it clear that there are a number of important things that we do not know about man-machine systems. For instance, how performance is shaped, how strategies are formed, how mistakes in decisions occur, how tasks can be meaningfully analyzed, etc. Only by detatching ourselves from the traditional physicalistic approach and realizing where the problems lie, can we hope to make significant progress in our knowledge of man-machine systems.

A computer programming system using continuous speech input

A functioning system is described in which spoken Fortran-like programs can be reliably interpreted by a computer. Speech is encoded into cepstral patterns using a shifting overlapping 32-ms Hamming window. A vocabulary of 26 words was selected so that the distance between different words, in their cepstral representation, was large. The syntax of individual phoneme strings in a word, and the syntax chosen for the programming language, were used to resolve ambiguous decisions. Feedback to the programmer greatly increased the reliability of the system, since, 1) mistaken decisions could be corrected, and 2) the programmer gradually learned to speak in such a way that system mistakes were greatly reduced. With two trained speakers, the recognition rate was 50-75 percent on sentences, 75-90 percent on words, and with user feedback and correction, the recognition rate was 100 percent with no more than two repetitions for long statements. The good performance achieved was due to the well-chosen vocabulary, strong syntactic support, and speaker training. The basic drawback for the system at present is that the initial training of the user is a time-consuming process. However, further improvement has since been achieved by using the initial isolated cepstral prototypes to locate new prototypes in samples of continuous speech, and then using the "continuous prototypes" for recognition. Currently, formant trajectories, derived from a pitch synchronous, linear prediction analysis, are being used, and an automatic stress analysis program provides segmentation, and guides the selection of key allophones.

The Practical Use of Sociological Knowledge

A great effort must be made to distinguish the roles of the sociologist on one hand and the tole of the decision maker on the other. It is essential to realize that use of social science in the shaping of policy decision an idea which we advocate it not at all the same thing as use of the social scientist as a policy and decision maker an idea that I must admit leaves me uncomfortable. A scientist can aid a decision maker by providing one of the several ingredients out of which decisions are made: knowledge. He is competent by his training to provide this. But he is not particularly competent to make the decision itself; nothing in a sociologists's training has qualified him in any special way for such a task. Of course, one makes many decisions in the course of scientific work decisions about methods, data, inferences, condusions, and so forth. The interesting fact about these decisions is that they involve only modest risks and that these risks are bome by the scientist alone. If a wrong decision is made and a scientific mistake is published, the worst that can happen is that someone points out the error in a subsequent publication and the erring scientist stands corrected. This may be embarrassing and hurt one's professional reputation a little, but usually the scientist still has his job and his community standing; it may sometimes even be an asset to him to have received the attention brought about by his mistake. In short, mistaken decisions have little consequence in the world of science; in