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

Listed author(s):
  • Martin G. Kocher
  • Matthias Sutter

    ()

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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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
Handle: RePEc:esi:discus:2004-05
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  1. Martin G. Kocher & Matthias Sutter, 2005. "The Decision Maker Matters: Individual Versus Group Behaviour in Experimental Beauty-Contest Games," Economic Journal, Royal Economic Society, vol. 115(500), pages 200-223, 01.
  2. Kocher, Martin & Strau[ss], Sabine & Sutter, Matthias, 2006. "Individual or team decision-making--Causes and consequences of self-selection," Games and Economic Behavior, Elsevier, vol. 56(2), pages 259-270, August.
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  14. Wilcox, Nathaniel T, 1993. "Lottery Choice: Incentives, Complexity and Decision Time," Economic Journal, Royal Economic Society, vol. 103(421), pages 1397-1417, November.
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  16. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  17. 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.
  18. Tanga McDaniel & E. Rutström, 2001. "Decision Making Costs and Problem Solving Performance," Experimental Economics, Springer;Economic Science Association, vol. 4(2), pages 145-161, October.
  19. Payne, John W. & Bettman, James R. & Luce, Mary Frances, 1996. "When Time Is Money: Decision Behavior under Opportunity-Cost Time Pressure," Organizational Behavior and Human Decision Processes, Elsevier, vol. 66(2), pages 131-152, May.
  20. Ho, Teck-Hua & Camerer, Colin & Weigelt, Keith, 1998. "Iterated Dominance and Iterated Best Response in Experimental "p-Beauty Contests."," American Economic Review, American Economic Association, vol. 88(4), pages 947-969, September.
  21. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
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  23. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
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