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Exploration in Teams and the Encouragement Effect: Theory and Evidence

Author

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  • Emma von Essen

    () (Department of Economics and Business Economics, Aarhus University)

  • Marieke Huysentruyt

    (Strategy and Business Policy, HEC Paris, and SITE, Stockholm School of Economics)

  • Topi Miettinen

    (Department of Economics, Hanken School of Economics, Helsinki, and SITE, Stockholm School of Economics)

Abstract

This paper analyzes a two-person, two-stage model of sequential exploration, where both information and payoff externalities exist, and tests the derived hypotheses in the laboratory. We theoretically show that even when agents are self-interested and perfectly rational, the information externality induces an encouragement effect: a positive effect of first-player exploration on the optimality of the second-player exploring as well. When agents have other-regarding preferences and imperfectly optimize, the encouragement effect is strongest. The explorative nature of the game raises the expected surplus compared to a payoff equivalent public goods game. We empirically confirm our main theoretical predictions using a novel experimental paradigm. Our findings are relevant for motivating and managing groups and teams innovating not only for private but also, and especially so, for public goods.

Suggested Citation

  • Emma von Essen & Marieke Huysentruyt & Topi Miettinen, 2019. "Exploration in Teams and the Encouragement Effect: Theory and Evidence," Economics Working Papers 2019-10, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2019-10
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    Keywords

    Economics: Behavior and Behavioral Decision Making; Economics: Game Theory and Bargaining Theory; Economics: Microeconomic Behavior; Industrial Organization: Firm Objectives; Organization and Behavior; Decision analysis: Sequential;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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