18 - corporate turnaround game

Question 1

key finding of Van Huyck et al (1990)

Answer 1

one shot game
multiple cood e
pareto rankable e by level of effort

if game is repeated - with effort levels revealed at end of each round - there is rapid drift of chosen effort towards lowest possible level

Question 2

how did Brandt and Cooper extend the weakest link game

Answer 2

• is it possible to change a bad equilibria once established and move to a better one
• introduce bonuses to see if better equilibria can be reached through bonus rises - increase effort of whole group

Question 3

what do weakest link results suggest

Answer 3

that bad equilibria may persist even when better equilibria exist

Question 4

what was BC game

Answer 4

• subjects in groups ‘firms’
• 4 employees per firm
• employees choose effort level from 5 possibilities 0 - 40
• end of each round informed of effort levels
• weakest link payoff structure
• points convert to cash at end
• payoff is maxed by matching effort level of weakest link in the firm
• 5 NE in one shot game - pareto rankable
• changes bonus rates

Question 5

Brandt Cooper
aim

Answer 5

• can bonus rises reverse the convergence to bad equilibria?

Question 6

what is the design of BC

how do the blocks alter

Answer 6

• 30 rounds played in 3 blocks
• each block the bonus rate varies
• 6 cells - with 10 firms per cell
• block 1 = all firms have B = 6 (we expect downward convergence)
• block 2 = B raised, the amount raised by differs between cells (does increase in B lead to corporate turnaround)
• block 3 = firms with the 14 bonus in block 2, bonus is reduced in 3rd block (will turnaround persist? if bonus withdrawn)

Question 7

results from block 1
- after first 10 rounds played
- b = 6

Answer 7

majority of firms have more than 1 employee choosing e=0
- average across firms of minimum effort in firm is low

Question 8

what happens - whats the difference
block 2
increasing the bonus rate

Answer 8

• still same harm of losing same payoff if everyone else chooses 0 and you dont
• but higher payoffs if everyone chooses options other than 0
• potential gains from effort are now bigger than before

-

Question 9

results
block 2
increasing the bonus rate

Answer 9

• cell without bonus rise = no change in average minimum effort in firm
• cells with bonus rise
• all bonus rises increase minimum effort
• minimum effort stabilises at higher level
• highest bonus rate doesnt mean highest minimum effort level achieved

Question 10

what is generating the shift to a higher effort level when the bonus is introduced

• if it is not necessarily the size of bonus that induces it

Answer 10

• the bonus provides a salient occasion for team to try to reach a better equilibrium
• attempt to shift the min effort of group
• if it doesnt shift high enough a higher bonus wont help

Question 11

why is there heterogeneity in the effect of the bonus

Answer 11

by end of round 20:
- 20% employees choose 0
- 50% choose 40

• firms who react best to the bonus are firms with strong leaders and responsive followers
• the higher the number of strong leaders in each firm - a higher average of minimum effort is reached

Question 12

block 3
results
withdrawing the high bonus

Answer 12

• dont see drop in average minimum rate
• temporary bonus has persistent effects
• for firms whose bonus drops back to 6 - still higher effort levels than in block 1

Question 13

what are 3 aspects that affect players beliefs about what others will do - how does it influence play

Answer 13

payoffs
histroy
communication

Question 14

what mechanism drives the change in effort

Answer 14

• bonuses act as coordinating devices - drive team members expectations of one another
• set path out of bad equilibrium
• salient moment to change behaviour
• seized by strong leaders - followers follow