This article presents empirical evidence that people use anchoring to form their valuation of an object. Using data from the on-line auction Bidz.com, we found that people bid more for an item with a higher posted 'buy now' price than for an identical item with the lower posted 'buy now' price.

This paper investigates how compensation structure affects performance in a simple but effort-consuming task. In this experimental study, the subjects were asked to multiply two-digit numbers for 40 min and were paid using either a linear (with different pay for performance sensitivities) or a...

This paper presents the results of an experimental study on jump bidding in takeover auctions with entry costs. It provides support for signaling hypothesis behind jump bidding and analyzes how the size of the entry costs affects the bidders' behavior and their expected profits. It also shows...

This paper analyzes a model of preemptive jump bidding in private value takeover auctions with entry costs. It shows that when the second bidder owns a fraction of the target firm preemptive jump bidding leads to a higher social surplus, improves the expected profit of both bidders and reduces...

This paper presents the results of an experimental study aimed to understand how the past stock performance affects investor's desire to buy or sell the stock. It shows that people prefer to buy stocks that performed well in the past. However, when investors must sell one of the stocks they...

This paper provides an explanation for the widespread use of stock option grants in executive compensation. It shows that the optimal incentive contract for loss-averse managers must contain a substantial portion of stock options even when it should consist exclusively of stock grants for...