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Time is money - Time pressure, incentives, and the quality of decision-making

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  • Martin G. Kocher
  • Matthias Sutter

    ()

Abstract

Many decisions in economics and finance have to be made under severe time pressure. Furthermore, payoffs frequently depend on the speed of decision-making, like, for instance, when buying and selling stocks. In this paper, we examine the influence of time pressure and time-dependent incentive schemes on the quality of decision-making in an experimental beauty-contest game. We find that convergence to equilibrium is faster and payoffs are higher under low time pressure than under high time pressure. Interestingly, time-dependent payoffs under high time pressure lead to significantly quicker decision-making without reducing the quality of decisions.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2004-05.

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Length: 30 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:esi:discus:2004-05

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Keywords: quality of decision-making; time pressure; incentives; beauty-contest experiment;

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References

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  1. Sutter, Matthias & Kocher, Martin G. & Strauß, Sabine, 2003. "Bargaining under time pressure in an experimental ultimatum game," Munich Reprints in Economics 18220, University of Munich, Department of Economics.
  2. Weber, Roberto A., 2003. "'Learning' with no feedback in a competitive guessing game," Games and Economic Behavior, Elsevier, vol. 44(1), pages 134-144, July.
  3. Antoni Bosch-Dom?nech & Jose Garcia-Montalvo & Rosemarie Nagel & Albert Satorra, 2002. "One, two, (three), infinity: Newspaper and lab beauty-contest experiments," Artefactual Field Experiments 00011, The Field Experiments Website.
  4. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
  5. Martin G. Kocher & Matthias Sutter, 2004. "The Decision Maker Matters: Individual versus Group Behaviour in Experimental Beauty-Contest Games," Papers on Strategic Interaction 2004-09, Max Planck Institute of Economics, Strategic Interaction Group.
  6. Duffy, John & Nagel, Rosemarie, 1997. "On the Robustness of Behaviour in Experimental "Beauty Contest" Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1684-1700, November.
  7. Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-188, Fall.
  8. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
  9. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
  10. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  11. Matthias Sutter & Martin G. Kocher, . "Favoritism of agents – The case of referees’ home bias," Papers on Strategic Interaction 2002-28, Max Planck Institute of Economics, Strategic Interaction Group.
  12. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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Citations

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Cited by:
  1. Lindner, Florian & Sutter, Matthias, 2013. "Level-k reasoning and time pressure in the 11-20 money request game," Munich Reprints in Economics 19234, University of Munich, Department of Economics.
  2. Buckert, Magdalena & Oechssler, Jörg & Schwieren, Christiane, 2014. "Imitation under stress," Working Papers 0556, University of Heidelberg, Department of Economics.
  3. Joep Sonnemans & Jan Tuinstra, 2008. "Positive Expectations Feedback Experiments and Number Guessing Games as Models of Financial Markets," Tinbergen Institute Discussion Papers 08-076/1, Tinbergen Institute.
  4. Shu-Heng Chen & Ye-Rong Du & Lee-Xieng Yang, 2014. "Cognitive capacity and cognitive hierarchy: a study based on beauty contest experiments," Journal of Economic Interaction and Coordination, Springer, vol. 9(1), pages 69-105, April.
  5. Sonnemans, Joep & Tuinstra, Jan, 2010. "Positive expectations feedback experiments and number guessing games as models of financial markets," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 964-984, December.
  6. Meub, Lukas & Proeger, Till & Bizer, Kilian, 2013. "Anchoring: A valid explanation for biased forecasts when rational predictions are easily accessible and well incentivized?," Center for European, Governance and Economic Development Research Discussion Papers 166, University of Goettingen, Department of Economics.
  7. Ibanez, Marcela & Czermak, Simon & Sutter, Matthias, 2008. "Searching for a better deal - on the influence of group decision making, time pressure and gender in a search experiment," Working Papers in Economics 296, University of Gothenburg, Department of Economics.
  8. Young, Diana L. & Goodie, Adam S. & Hall, Daniel B. & Wu, Eric, 2012. "Decision making under time pressure, modeled in a prospect theory framework," Organizational Behavior and Human Decision Processes, Elsevier, vol. 118(2), pages 179-188.

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