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We use a lab experiment to examine whether and how leaders influence workers’ (un)ethical behavior through financial reporting choices. We randomly assign the role of leaders or workers to subjects, who can choose to report an outcome via automatic or self-reporting. Self-reporting allows for profitable and undetectable earnings manipulation. We vary the leaders’ ability to choose the reporting method and to punish workers. We show that workers are more likely to choose automatic reporting when their leader voluntarily does so and can assign punishment. Even workers who choose self-reporting tend to cheat less when their leader chooses automatic reporting. Nonetheless, most leaders do not opt for automatic reporting in the first place: they often choose self-reporting and punish workers who rather choose automatic reporting. Collectively, our results reveal a dual effect of leadership on ethical behaviors in organizations: workers behave more ethically if their leader makes ethical choices, but often leaders do not make ethical choices in the first place. Hence, leading by example can backfire.

Research Question/Issue: Contributing to ongoing debates on the determinants of diversity at the helm of companies, we investigate the relationship between executives’ gender and pay inequality within the top executive team.Research Findings/Insights: Using a panel data set of US listed firms, we find that a greater inequality in executive pay is positively associated with the exit of female executives from the firm’s top executive team. This effect is economically larger when the starting level of female representation in the executive team is low, when the firm uses more variable compensation to reward executives, and when the firm operates in geographic areas featuring stronger aversion toward income inequality.Theoretical/Academic Implications: Our study expands existing knowledge on the organizational and external factors promoting gender diversity at the top of companies. While this literature has widely analyzed women’s entry into corporate positions, exit has been largely neglected. Our study fills this gap by documenting significant gender differences in the relationship between executives’ pay inequality and exit rates from the top executive team. In so doing, we connect the literatures on gender diversity and executive pay distribution, which have developed in a rather independent manner.Practitioner/Policy Implications: Drawing on insights from corporate governance and behavioral economics, this study offers novel evidence to policy-makers interested in addressing the under-explored challenges associated with the retention of women in corporate positions and their upward mobility within the corporate hierarchy. Moreover, the contextual variations behind our main finding suggest that cultural values and norms may play a key role in shaping the effectiveness of public policies aimed at increasing diversity in corporate governance positions.

Extant research shows that entrepreneurs are typically overly optimistic about their ventures’ prospects and that such optimism hampers performance. We analyze how dispositional optimism affects the adjustments to entrepreneurs’ expectations after they receive negative feedback on their task performance. We then explore the relationship between optimism and the effectiveness of innovation. Exploiting unique firm-level data and a laboratory experiment involving 205 entrepreneurs, we find that dispositional optimism is negatively associated with both the likelihood and extent of belief updating in response to negative feedback. Furthermore, dispositional optimism triggers a discrepancy—between innovation inputs and outputs—that reduces a firm’s innovation effectiveness.

Resource depletion and income inequality are major challenges for sustainable growth. We propose a study of the impact of a “green coin” on sustainable consumption and income inequality. “Green coin” is a currency based on the natural resources one can consume. Individuals are entitled to the same yearly “sustainability budget”. Once Green coin is introduced, individuals pay two prices for a good: its normal price, and its price in Green coins. In a world of high- and low-income individuals, those with high income require more “green coins” than they have. High-income individuals can trade part of their income for Green coins with low-income individuals or shift their consumption towards sustainable goods, with lower Green coins costs. We suggest testing changes in consumption and income distribution in laboratory experiments. This research can provide insights into a market-based solution that tackles environmental and social challenges. These insights form the basis for future development of theory and policy.

The spread of COVID-19 creates unprecedented challenges for the business sector. What affects the ability of entrepreneurs to face these challenges? In this paper, we study how dispositional optimism shaped entrepreneurs’ actions and beliefs during the first wave of the COVID-19 outbreak. Survey evidence from 1,632 UK firms shows that entrepreneurs who score high on dispositional optimism were more likely to innovate and make organizational changes to their firms. This finding is robust to controlling for differences in business revenues during COVID-19 and for a large set of firm- and individual-level controls. Next, our data show that optimistic entrepreneurs hold more positive expectations about their ability to withstand the COVID-19 shock, and expect a more generous rebound for the whole UK economy. Expanding to the entrepreneurship setting a large literature on personality and individual health, our study suggests that dispositional optimism helps explain which firms will prosper and which others will struggle in the wake of the COVID-19 pandemic.

We investigate whether the gender of top executives influences a firm’s reaction to competitive pressures. Our empirical approach is based on policy changes that varied the exposure of US banks to competition during the late 1990s. Results suggest that while banks with female executives experience significantly higher financial performance under low competition, they tend to underperform when competition increases. At the same time, we find that the presence of female leaders improves the capital stability of banks subject to greater competition. Overall, our study highlights strong interactions between executive gender and market structures in the determination of business outcomes.

We examine whether and how leaders shape fraudulent behaviors within their organization. We use a lab experiment where subjects—randomly assigned the role of leaders or workers—are asked to privately roll a die and report the outcome, with higher reported outcomes corresponding to higher payoffs. Before rolling the die, they can choose how to report the outcome, by either a computer draw or a self-reported die roll. Self-reporting allows for profitable, undetectable earnings manipulation. We vary the leaders’ ability to choose the reporting system, and punish or reward workers for their reporting system choices. Our results indicate that workers are more likely to choose computer reporting when their leaders voluntarily do so, and can punish or reward. Even workers who choose self-reporting reporting tend to cheat less when their leaders choose computer reporting. However, most leaders do not opt for computer reporting in the first place: they frequently choose self-reporting and punish workers who rather choose computer reporting. Collectively, our results reveal a dual role of leaders in fostering an ethical climate in their organization: they can affect workers’ reporting system choices, but most of the times this exacerbates—rather than fixes—fraudulent behaviors.

Finding the right company name is a challenging decision with major consequences for firm prospects. We study the implications of “unfamiliar” names (i.e. foreign sounding and family-unrelated) for...

We conduct an experiment to investigate how the gender composition of an audience interacts with the gender of a player thereby shaping her/his degree of responsibility in decision-making. Together with the measures of accountability based on decision theory, we employ two physiological measures, blood pressure and heart rate variability, which allow us to disentangle the separate effects of stress and accountability. Our results show that men are more sensitive to changes in the gender composition of the audience; specifically, men lower their accountability when paired with a female audience. By contrast, women display a level of accountability that does not change with gender pairing. Finally, we find that the variation in blood pressure has a significant but small effect only on men's behavior. © 2011 Elsevier B.V., We thank the Antoni Serra Ramoneda, UAB – Caixa Catalunya Research Chair for providing financial support.

We investigate whether the gender of top executives influences a firm’s reaction to competitive pressures. Our empirical approach is based on policy changes that varied the exposure of US banks to competition during the late 1990s. Results suggest that while banks with female executives experience significantly higher financial performance under low competition, they tend to underperform when competition increases. At the same time, we find that the presence of female leaders improves the capital stability of banks subject to greater competition. Overall, our study highlights strong interactions between executive gender and market structures in the determination of business outcomes.

Foreword A. Innocenti, A. Sirigu Part 1: Evidence on the Neuroscientific Foundations of Decision-Making 1. Private and Social Counterfactual Emotions: Behavioural and Neural Effects C. Crespi, S.F. Cappa, N. Canessa 2. The Influence of Social Value Orientation on Information Processing in Repeated Voluntary Contribution Mechanism (VCM) Games: An Eye-Tracking Analysis S. Fiedler, A. Glockner, A. Nicklisch 3. Gaze Bias Reveals Different Cognitive Processes in Decision Making Under Uncertainty P. Piu, F. Fargnoli, A. Rufa Part 2: Emotions and Morality in Decision-Making 4. Moral Sentiments: A Behavioral Economics Approach M. Zeelenberg, S.M. Breugelmans, I.E. de Hooge 5. Neuropsychology of Moral Judgment and Risk Seeking: What in Common? A New Look on Emotional Contribution to Decision-Making M. Balconi, A. Terenzi 6. Emotional Decisions - The Induction-of-Intrinsic-Desires Theory C. Lumer Part 3: Learning and Risk Attitude in Decision-Making 7. From Habit to Addiction: A Study in Online Gambling Behavior W. Jolley, D.N. Black 8. Gains and Losses in Intertemporal Preferences: A Behavioural Study V. Faralla, F. Benuzzi, P. Nichelli, N. Dimitri Part 4: Probability and Judgment in Decision-Making 9. Cognitive and Affective Responses to Schema Incongruent Brand Messages: An Empirical Study G. Halkias, F. Kokkinaki 10. Expert Elicitation Method Selection Process and Method Comparison A. Dalton, A. Brothers, S. Walsh, A. White, P. Whitney Part 5: Decision-Making in Social Interaction 11. Does Sharing Payoffs Affect Gender Differences in Accountability? J. Brandts, O. Garofalo 12. Social Learning and Rational Choice S. Di Piazza, L. Vaccarella, A. Dell'Ava, S. Conti, A. Rizzo

We conduct an experiment to investigate how the gender composition of an audience interacts with the gender of a player thereby shaping her/his degree of responsibility in decision-making. Together with measures of accountability based on decision theory, we employ two physiological measures, the blood pressure and heart rate, that allow us to disentangle the separate effects of stress and accountability in decisionmaking. Our results show that men are more sensitive to changes in the gender composition of the audience; specifically, men lower their accountability when paired with women. By contrast, women display a level of accountability that does not change with gender pairing.