The NSE Centre for Behavioral Science was inaugurated on December 23, 2019 at the Indian Institute of Management, Ahmedabad with a grant from the National Stock Exchange of India Ltd. The first-of-its-kind in a management institution in India, the CBS aims to build a cross-disciplinary platform for conducting and disseminating research grounded in neuro-scientific and behavioral knowledge across diverse fields of management including but not limited to finance, economics, marketing, organizational behavior and human resource management.
Behavioral science tools have been advancing over the years and could unearth deep-rooted behavioral patterns and biases. Insights from such research could shed new light on our understanding and help shape policies that could spread the benefits to a wider section of the population. With academic rigor and experimental-based research, the CBS aims to produce meaningful decision-making insights that could benefit industry leaders and policy makers in drawing fresh perspectives and outlooks.
With the CBS, the Institute aims to lead the way with applied research to improve management practices across sectors of finance, health, public policy, marketing, economics, organizational behavior and human resource management as well as making pathbreaking contributions to academia in these areas. The centre would like to engage in rigorous but relevant research and looks to connect with interested researchers in academia and practitioners in industry.
The CBS is equipped with an EEG system, Eye Tracker, and Galvanic Skin Response (GSR). The laboratory is designed to explore the applicability of behavioral science theories in marketing, finance, and economics for generating and disseminating ideas around these themes.
Adrija Majumdar, Pranav Singh
There is ambiguity regarding whether coronavirus disease 2019 (COVID-19) is a boon or bane for the IT services industry. On the one hand, it has created opportunities, especially with the growth of collaborative technologies. On the other hand, many firms have reduced their IT budgets owing to the ongoing recession. This study explores how IT firms have assessed the risk of the pandemic in the early days and informed capital market participants. In addition, it examines the impact of such online disclosures on information asymmetry.
The authors analysed annual reports of publicly listed firms in the USA filed on the Securities and Exchange Commission website in 2020 and examined whether the disclosure scenario of technology firms was different from that of the other industries. Moreover, the risk sentiment of COVID-19-related disclosures was assessed by employing text analytics. Information asymmetry was measured using the bid–ask spread.
Overall, it was found that IT services firms were less likely to discuss the COVID-19 pandemic in their annual reports. Interestingly, it was observed that technology firms that chose to communicate about the pandemic had a lower incidence of words related to risks. Furthermore, communicating about COVID-19 in annual reports calms investors and improves the information asymmetry situation about the firm. Variation in the severity of the pandemic and the responses of state governments was controlled for by employing state-fixed effects in the empirical models.
The authors inform the literature on corporate disclosures and technology and highlight the importance of effectively communicating about the pandemic.
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Ankur Kapoor, Arvind Sahay, Nandini C. Singh, V.S. Chandrasekhar Pammi, Prantosh Banerjee
The Limited Foresight Equilibrium (LFE) for this model. An LFE specifies how limited-foresight players' strategies and beliefs about opponents' foresight evolve as they move through the stages of the game. I show the existence of LFE and describe its other properties. I show that in LFE limited-foresight players follow simple heuristics for beliefs and actions. As applications, LFE is shown to rationalize experimental findings on Sequential Bargaining and the Centipede game.
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Jeevant Rampal
Using two experiments, this paper demonstrates that expert players of sequential- move games best respond to their opponents’ backward-induction ability. In particular, I show that these experts take advantage of inexperienced opponents’ weakness in backward induction. I find this when the expert is explicitly told that her opponent is inexperienced, but also when she infers the opponent’s weakness from the opponent’s preceding performance. I demonstrate that other-regarding preferences have no role in these findings. I find that a novel model of limited foresight and uncertainty about the opponent’s foresight fits the data better than Level-k or Quantal Response models.
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Joshy Jacob, Pradeep K.P.
It is important to assess the level of financial market valuation relative to fundamentals through suitable indicators. One of the widely employed indicators of market valuation is the cyclically adjusted PE ratio (CAPE). The research project intends to develop and maintain a frequently updated database of CAPE for the Indian market, as a barometer of market valuation. It is intended to provide guidance for financial market practitioners, including fund managers and traders to monitor the aggregate market valuation levels.
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Amit Karna, Shamim Mondal, Viswanath Pingali
The authors of the paper look at how foreign firms and domestic firms react differently to policy uncertainty, in an emerging economy context. Further, the authors investigate how older foreign firms adapt to policy uncertainty better than the newer entrants. The study uses data from pharmaceutical sales in cardiovascular segment in India from January 2011 to May 2016. We use fixed effects panel data regression to measure market reaction of foreign firms and domestic firms when faced with policy uncertainty. While domestic and foreign firms react similarly when faced with anticipated policy changes, foreign firms react more adversely when faced with policy uncertainty. Foreign firms, which are earlier entrants respond less adversely than the newer entrants. The paper adds to the literature on firm response to policy uncertainty. It provides insights to the managers on facing policy uncertainty, and lessons to the policy makers on the impact of policy uncertainty.
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Jeevant Rampal
This paper models a scenario where finite perfect-information games are distorted in two ways. First, each player can have different possible levels of foresight, where foresight is a particular number of future stages that the player can observe/understand from each of her moves. In particular, each player's foresight is allowed to be “limited” or insufficient to observe the entire game from each move. Second, there is uncertainty about each opponent's foresight. I define the Limited Foresight Equilibrium (LFE) for this model. An LFE specifies how limited-foresight players' strategies and beliefs about opponents' foresight evolve as they move through the stages of the game. I show the existence of LFE and describe its other properties. I show that in LFE limited-foresight players follow simple heuristics for beliefs and actions. As applications, LFE is shown to rationalize experimental findings on Sequential Bargaining and the Centipede game.
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Avijit Bansal, Balagopal Gopalakrishnan, Joshy Jacob, Pranjal Srivastava
The authors examine how the market valuation of firms varies on account of their operational fragility that makes them vulnerable to the COVID-19 pandemic. Using the data on plant location that uniquely identifies the vulnerability of firms to operational disruptions, the authors find that firms with plants located in zones susceptible to higher infections earn significantly lower returns. For firms with high operational fragility, the marginal value of financial flexibility and operating flexibility is higher. The adverse impact of the operational fragility is lower for firms affiliated with the larger business groups. The paper identifies unique channels associated with the pandemic that impact firm value.
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Avijit Bansal, Joshy Jacob
Recent experimental studies illustrate the influence of price path, particularly the ‘non-straight’ price path, on several aspects of investor decision-making. The paper employs an empirical proxy for price path based on convexity and demonstrates that price convexity significantly impacts the selling decisions with transaction-level data. The authors find that a price path that is likely to signal a favourable (unfavourable) price movement in the future lowers (heightens) the selling propensity of traders in stocks. The findings suggest that likely expectations about future price movement, as could be inferred from the experienced price path, significantly influence the trading decisions of retail traders.
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Balagopal Gopalakrishnan, Joshy Jacob, Sanket Mohapatra
The COVID-19-induced disruptions and the consequent government responses stretched the financial resources of firms. Recent studies document an increase in debt financing by firms during the pandemic. Using firm-level data from 61 countries, the authors deepen the understanding of the impact of the pandemic by examining the variation in loan and bond financing attributable to COVID-19-specific factors. Indicative of heightened precautionary needs, firms with higher pandemic exposure and those located in countries with stringent lockdowns have a higher propensity to raise debt. Furthermore, firms in industries less amenable to remote working also have a higher propensity to raise debt, but face higher financing costs compared to their peers. Reflective of opportunistic investment motives, firms that hold a relatively positive outlook have a greater likelihood of raising loan financing. The findings draw attention to the role of real-side factors and managerial motives that drive debt financing during a distress episode.
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Nilesh Gupta, Anil V Mishra, Joshy Jacob
The authors examine the influence of Cumulative Prospect Theory (CPT) characteristics of fund returns on investment flows with a cross-country data of equity mutual funds. The authors find that a larger CPT value of the style-adjusted past returns is associated with higher fund flows in the subsequent quarter. The impact is greater for retail-oriented funds, relatively younger funds, and those with higher active share. While funds that score high on the CPT value attract incremental fund flows, they earn a lower alpha than their peers in the following year. The sensitivity of fund flows to the CPT characteristics is higher in countries with greater individualism and short-term orientation. The results are robust to several additional tests and hold across various subsamples of our data. The findings imply that investors have misplaced expectations about the future performance of funds that show higher CPT values and the fund managers cater to these investor preferences.
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Joshy Jacob, Nilesh Gupta, Balagopal Gopalakrishnan
The paper examines the investment decisions of Indian equity mutual funds during various stages of the COVID-19 pandemic with monthly portfolio holdings. The authors find that funds favoured firms with lower risk, higher financial flexibility, and larger size during the early months of the pandemic. The preference for relatively low-risk firms, which reverses later, suggests a reallocation towards safer assets. Funds also preferred growth firms to value firms as the latter with greater invested capital are more vulnerable to the shock. Institutional investors also favoured group-affiliated firms throughout, reflecting their lower crisis vulnerability. The authors find that the stocks preferred by funds during the pandemic outperform others in the long run. The paper brings out key firm characteristics that impact mutual fund asset allocation during extreme uncertainty.
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Joshy Jacob, K P Pradeep, Jayanth Rama Varma
The authors study the characteristics of Quality factor (QMJ) in India, which is the second largest emerging market. Dimensions of quality factor are impacted by the weaker enforcement of corporate governance norms in emerging markets. Diversion of revenues by promoters would result in poor profitability, while tunneling of profits would result in lower payout and lower growth. Therefore, investors are likely to attach greater significance to the quality dimensions in stock pricing. Consistent with this hypothesis, the Quality factor is even more important for asset pricing in India than in developed markets. The QMJ factor earns a four factor alpha of 0.92% per month, significantly outperforming the other widely employed factors, market, size, value and momentum factors. A long-only Quality factor earns an alpha of 0.69% per month. The alpha of quality factors is highly significant, judged by the thresholds recommended by Harvey, Liu, and Zhu (2016). The key drivers of the alpha are profitability and payout, which are both consistent with the tunnelling hypothesis. Besides the alpha, the low portfolio churn, lower risk, shorter drawdowns, and viability of long-only strategies restricted to large capitalization stocks suggest that portfolios tilted towards high-quality stocks are highly attractive to institutional and retail investors.
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Kunal Apastamb, Yash Chakarvarty, Arvind Sahay
The disposition effect, identified by Shefrin & Statman (1984) is a robustly studied bias in behavioral finance. It states that the individuals hold the losing stocks for a long time and they sell the winning stocks early. According to the standard economic theories – like the expected value model, the rational investor will maximize the gains by selling off the losers and holding the gainers. But investors do not trade so optimally. A robust conclusion about the effect was found when Odean (1998) studied the trading pattern of 10,000 traders. The author calculates the Propensity of Gains Realized and the Propensity of Losses Realized to understand the pattern. It is compared with paper losses and paper gains. It clearly established the disposition effect.
There have been studies to explain the reasons behind the bias. The mean reversal hypothesis, prospect theory, and the realization utility hypothesis are some of the main reasons cited. Moving ahead in the individual differences causing the disposition effect, the study by Thornton (2021) discusses the effect of weather on mood and that mediates the disposition effect. Apart from the weather, other exogenous variables like air pollution, which are not technically related to trading also affect investment decisions. Li et al. (2021) find that air pollution increases the disposition effect. It significantly caused trading inefficiency.
This study extends an interesting observation in the literature. The disposition effect reverses while a person is in a negative mood. This is studied at a macro level by Thornton (2021). This study proposes an EEG experiment for robust conclusions and argues that there would be only a partial reversal of the disposition effect.
Research Question: Does a negative utility burst reverse the disposition effect only partially?
Yash Chakarvarty, Arvind Sahay
Advertising that reaches consumers outside of their homes is referred to as out-of-home (OOH) advertising, sometimes referred to as outdoor advertising. These ads are a part of an above-the-line marketing plan that is mostly untargeted and has a broad audience. Traditionally, this covers every type of signage, such as bus shelters, seats, and billboards. The majority of advertisements that you encounter outside of your home (that aren't on your mobile device!) are OOH ads. Some of the categories that fall under the umbrella of out-of-home advertising are billboards, transit, steel furniture, and place-based. Due to the fact that cognitive load is lower in the morning and higher in the evening, this study employs electroencephalography (EEG) to determine whether or not increased mental effort affects billboard visibility in the evening. We all spend time outside, and with the proliferation of digital advertising, it can be challenging to make sure that your message is conveyed effectively at times.
Out-of-home advertising (OOH) provides a solution to this problem, and it is now merging with digital improvements to become an extremely effective tool for advertisers and marketers. Being a part of the out-of-home advertising arena right now is unquestionably one of the most exciting times ever. Over the course of the past years, there has been a consistent level of demand for OOH advertisements. Even still, as we go into a new decade, the advertising industry is justifiably thrilled about what the next few years have in store for traditional forms of marketing. Because of the convergence of technological developments with the time-honored advantages of conventional forms of advertising, the world of out-of-home (OOH) advertising has become virtually indispensable to the majority of marketing and advertising professionals. To understand whether the outdoor media content consumption (actual retention) is need-based. Therefore, what are the distinct needs one has during the day, which result in various levels of attention?
Dhruvisha Dave, Yash Chakarvarty, Arvind Sahay
In any organization, there is a decrease in the workforce which happens not due to hiring replacements for people who leave the organization. Every day, employees make choices and perform actions that have an impact on your team and organization. The way any employee is treated and their interaction with one another can have a positive impact on their behavior or can put the organization at risk. Therefore, it is essential for businesses to comprehend why some employees leave and others stay in an increasingly competitive and fast-moving labor market in order to increase profitability and retain top talent. A fundamental component of corporate human resources is the study of organizational behavior, which encompasses fields of inquiry devoted to enhancing job happiness, job performance, and creativity. Employee engagement refers to an individual’s sense of emotional commitment to the employer and their place of employment. The success of the organization may be significantly impacted by larger levels of engagement, according to some studies.
The study aims to understand what employees value and the motivators which influence employees' perception. To envisage the key moderators which play a significant role in employee retention we have used a 32-channel EEG system. An electroencephalography or EEG looks for changes in the brain's electrical activity or brain waves. The scalp will be covered in electrodes, which are tiny metal discs with thin wires, during the process. The brain's activity generates minute electrical charges that are detected by the electrodes. Several factors, including productivity, income, performance and even employee retention are impacted by employee engagement. High levels of engagement enhance organizational performance and stakeholder value while encouraging talent retention, fostering customer loyalty, and improving customer satisfaction.
Rohan Chaudhary, Muskan Jindal, Kunal Apastamb
Online e-commerce websites have a more significant influx of consumers than physical stores. Yet we abstain from analyzing the buying behavior on these web-based applications and do not implement strategies to help consumers and sellers make better decisions. Retailers opt for various measures to influence consumer behavior in physical stores, but not so much in their online stores. Through analysis of several psychological works of literature, we can find areas to add nudges in web applications that would induce specific responses and enhance the overall user experience, thus converting it into user retention and brand loyalty and improving conversion rates. Interactions can also help users navigate different parts of the website, providing nudges for the user journey. According to Thoughts on Interaction design by Jon Kolko, Interaction design is a form of communication that can be thought identical to language.
Research question: Does interaction design on the "add to cart" page increase conversion rates by creating an endowment effect?
Atul Kumar, Amogh Kumbargeri, Sukriti Sekhri, Yash Chakarvarty, Arvind Sahay
Awe is a common self-transcendent emotion experienced in response to information-rich, complex, and novel stimuli such as waterfalls, powerful individuals, religious experiences, and art (Keltner & Haidt, 2003). A growing body of research has examined its effects on information processing (Griskevicius et al., 2010), thinking (Chirico et al., 2018), perceptions (Rudd et al., 2012), beliefs (Valdesolo & Graham, 2014), and behavior (Piff et al., 2015). However, no previous research has shown the effect of awe on the nature of consciousness. Our research expands the theoretical understanding of awe by showing that awe leads to a mindful consciousness, which in turn leads to the choice of healthy food items.
Mindfulness is a state of consciousness emphasizing a) non-elaborative present-centered awareness and b) openness towards and acceptance of all experiences in the present environment (Bishop et al., 2004). Prior research finds that awe leads to a focus on the present moment (Rudd et al., 2012), and a diminishment of self. Further, as awe leads to a greater need for accommodation, it enables the processing of information without using existing knowledge structures, thereby enhancing the openness to new knowledge (Shiota et al., 2007). Taken together, we argue that awe leads to a state of mindfulness as it leads to present-centered awareness and openness to all experiences. Further, as awe leads to a mindful state, we expect consumers to make mindful consumption choices. In the present research has two-fold goals. First, we aim to provide physiological evidence in support of the hypothesized effect of awe on mindfulness. Second, we aim to test the downstream consequences of awe on consumption choices.
Arvind Sahay, Sudipta Mandal, Aditya Deshbandhu, Veda Poduval
This research project is exploratory in nature, suggests the existence of brand empathy as a concept, and suggests its meaning, scope, and role, in both the domains of marketing and broader society. The researchers deploy a multipronged mix-methods design that begins by exploring the existence of the concept using qualitative data and then relies on quantitative and empirical data for validating the idea and checking it for reliability and replicability. When the study is concluded, the researchers should be able to both identify the concept, and the role it plays in consumer decision-making and help provide evidence-backed reimagining of marketing concepts like brand loyalty.
This project aims to analyze the proportion of value coming from the product and how much of it is coming from the relationship between a client and the BDM, or engagement manager. Previous research has hardly investigated the medium of engagement between client and Business Development managers/Personnel and has, thus not, uncovered the interaction of both the parties (Hadjikhani. A & Bengtson. A, 2004) across digital and non-digital media. Especially when it comes to online or digital interaction, this knowledge gap indicates a need for research-based studies generating knowledge pertinent to understanding the interaction between the two using appropriate behavioral and analytical tools. One essential aspect of the relationship approach is an understanding of the characteristics and behaviors of both clients and firms. Relationship marketing studies have noted the lack of an integrative approach that considers the amalgamation of different ways of interaction, i.e., online vs. offline. Hence, there is an urgent need to understand what changes when the clients and Business Development Managers (BDM) interact through an online medium (as compared to offline) and the changes in the outcomes when the proportion of engagement on one medium changes relative to the other in the engagement process. Based on the objectives defined, we propose to:
a. Estimate the relative contributions of different modes of engagement with the client to the relationship and business outcomes
b. Propose a working model of the company Engagement Process with clients.
Sukriti Sekhri, Arvind Sahay, Richa Nigam, Yash Chakarvarty
Introduction and Research Objectives
Imagine Tejas, who is browsing on an e-retail platform and comes across an advertisement for a new phone model. The advertisement has a picture of the phone, the brand name, and the words “Coming Soon!” in big, bold letters. Consider Seema, who is in a similar situation when she sees an ad for a sleek set of headphones, where the ad promises, “Coming this Week!”. Which of the two individuals would be more likely to pre-book the product or have higher purchase intentions?
We often see the use of such temporal framing (vague versus precise) in pre-launch communication about products and experiences. Would varying the temporal framing alter behaviorally and purchase intentions towards the product or experience? Specifically, how would these findings differ across product categories (utilitarian versus hedonic) and experience valences (positive, neutral, negative)? In this research project, we thus examine two broad research questions. First, whether a vague versus a precise date framing (precise near future versus precise-distant future) affects purchase intention differently for hedonic versus utilitarian products. Second, whether varying the date framing leads to different behavioral intentions towards experiences that are positive, negative, or neutral.
Temporal Distances - Vague versus Precise Framing
Extant research has examined the role of defined near versus far temporal distances, but not vague versus precise temporal distances in differing contexts. For instance, in a neurological study, it was found that when participants were asked to imagine adjectives for their near future selves (1 month from now) and adjectives for negative traits elicited more positive event-related potentials (ERPs) deflections than positive traits in the 500-800 ms interval (LPP) (Luo et al., 2013). In the distant future selves (3 years from now) condition, there were no significant differences between positive and negative traits in the same interval (Luo et al., 2013). Another recent study involved giving participants moral dilemmas based in the near versus distant future and asking them to choose between a self-interest serving an immoral choice versus a moral one. The researchers found that “human brains discount the decision utility of the moral outcomes that will occur in the distant future” (Yun et al., 2019).
Like the examples above, current research has compared objectively near versus objectively distant situations, but we will examine how psychological distance, i.e., the perceived distance, plays a role. Our study focuses on evaluating products and experiences based on vague versus precise time frames.
Hedonic versus Utilitarian Products
Hedonic products are considered fun, exciting, and enjoyable, while utilitarian products are functional, necessary, and practical (Dhar & Wertenbroch, 2000). For instance, a mineral water bottle is more likely to be considered utilitarian, while a chocolate bar is hedonic. Recent research suggests that hedonism is linked with a higher construal level (abstract mindset) while utilitarianism to a lower construal level (concrete mindset) (Scarpi, 2021). Our behavioral experiments suggest that a vague date is more likely to be perceived as farther off than a precise date, as its inherent uncertainty increases the psychological distance and construal level. Thus, we expect to find that a vague date (higher construal level) will have a better “fit” with hedonic products, while a precise date (lower construal level) will align better with utilitarian or functional products. This fit should exhibit in terms of greater interest and purchase intentions towards the products.
There are two schools of thought on the neurological impact of both product categories. On the one hand, a recent event-related potentials (ERPs) study has found that utilitarian products lead to a relatively larger N2 component which suggests greater attention in the initial cognitive stage (Shang et al., 2020). Utilitarian products also give rise to a relatively smaller LPC component than hedonic products, implying a smaller negative affective reaction at a later stage (Shang et al., 2020). On the other hand, there is contradictory evidence that suggests that both hedonic and utilitarian products elicit emotions, but in the case of utilitarian products, these are unconsciously generated without the individual being aware of them (Bettiga et al., 2020). In the case of hedonic products, however, consumers are aware of these feelings and thus are able to express them in self-reported measures. We will examine ERP measures to examine if there are differences in the impact of both product categories, specifically in affective reactions when the date framing is varied.
Products versus Experiences
There is evidence that our reactions towards products versus experiences may be different; thus, it is worth investigating whether temporal framing impacts intentions towards experiences differently. People may exhibit more risk aversion towards negative
experiences but greater risk-seeking behavior towards positive ones (Martin et al., 2016). We will thus examine our research question for everyday experiences, which differ in their degree of pleasantness (determined by a pre-test) and their emotional loading (valence: positive, neutral, negative). Specifically, the objective is to uncover whether lack of certain information (vague temporal framing) or precise information (precise temporal framing) alters reactions to and preferences for such experiences.
Prof. Arvind Sahay, Richa Nigam, Sudipta Mandal, Vaidyanathan
Non-Price attributes are equally crucial to purchase decisions as much as the price of a commodity in enhancing the perceived value and perceived quality of the products. The current study empirically tests the effect of modulations in IRPs and purchase decisions formed as a function of changes in expected future non priced attributes.
Prof. Arvind Sahay, Prof. Ranjan Kumar Ghosh, Rahul Sanghvi, Anushka Oza, Divya Reji
In 2011, nutritional details began to be printed at the back-of-pack (BOP) of packaged foods. However, research reveals that even educated consumers do not pay attention to existing nutritional labels because not only are they located at the back-of-pack (BOP), but also, the majority of Indian consumers can read one or two vernacular languages. Recent global experience suggests that placing front-of-pack nutrition labels (FOPLs) can be more effective in nudging healthy consumption behaviour.
However, many developing economies are reluctant to introduce such systems. This is either due to paucity of reliable research, resistance from vested interests or lack of clarity about the most suitable FOPL format that would be comprehensible, acceptable and yet impactful across different consumer types. In this context, a large scale randomized controlled trial was conducted by Dr. Arvind Sahay, Rahul Sanghvi and Dr. Rajan Kumar Ghosh with Indian consumers to determine which among the popular formats of informative nutrient specific labels and summary ratings are the easiest to understand and influence purchase.
Results indicate that on an average, the summary ratings of Health Star Rating (HSR) and Warning Labels were the most preferred from the perspective of ease of identification, understanding, reliability and influence as compared to the informative or reductive labels such as Multiple Traffic Lights (MTL), monochrome Guideline Daily Amounts (GDA) or Nutriscore. MTL was most preferred when it came to reflecting necessary health information and presence of an unwanted nutrient. However, it ranked low in other parameters. From the perspective of changing consumer behaviour in terms of purchase intention, all five FOPL formats led to a significant change in the purchase intention although on the margin, MTL led to a higher change in purchase intention. Nearly 65% of the respondents reported reading labels with another 7% reporting that they read labels depending on the product.
Prof. Jeevant Rampal, Abhishek Tripathy
We intend to collect granular data on how Indian households take investment decisions. The survey will try to understand what drives the Indian household investor to invest in the way they choose to invest and what are the factors that influence the asset allocation for the Indian household investors. We will try to analyse if there is persistence of the household finance puzzles in Indian context which have been extensively talked about in the literature. We also intend to understand behavioural aspects of the decision-making process of the Indian household. This would be one-of-a-kind survey for Indian household investors.
Prof. Joshy Jacob, Mayank Prakash
There might be ample reason to believe that institutions might have some behavioural biases while trading especially when they are noise trading. We strive to study if in the event of a shock like the crash of March 2020, do these institutional investors relying on Diagnostic Expectations lead to excessive volatility. We would also like to understand if the results depend on whether the institutions are Domestic Institutional Investors or Foreign Institutional Investors. Further we also like to investigate if there is a difference in the results in developed and developing markets with a keen focus on India.
Divyanshu Jain, Prof. Jeevant Rampal, Abhishek Mundhra, Praneel Jain
Using incentivized online experiments, we study how charitable donations are causally affected by the nature of task performed for one’s earnings. We find that donations are significantly higher for participants who were randomly allocated to a nonroutine problem-solving task compared to those participants who were randomly allocated to a routinized counting task, even though both tasks yielded equal earnings and similar pay satisfaction. The nonroutine task causally increased task satisfaction and positive affect, and reduced negative affect. Correlational evidence suggests that the reduction in negative affect may have been the mechanism causing the increase in charitable donation due to the nonroutine task.
Prof. Ritwik Banerjee, Prof. Anujit Chakraborty, and Prof. Jeevant Rampal
Lockdowns are a necessary evil while containing epidemics, but their success depends on the extent of popular support. What factors increase support for a lockdown? We conduct a randomized intervention in two rural districts of India. Subjects listen to a short audio clip about COVID-19 or Dengue or none at all. The audio clips contain commonly available information about the diseases. Hence, they only increase the disease salience but offer no new information.
Our results show COVID salience causally increases the demand for lockdown, but Dengue salience does not. Relative to the no-audio-clip control, COVID salience increased the willingness to continue lockdown by 25 percent and the reported appropriate number of days by 33 percent.
Prof. Jeevant Rampal
In an experimental test of a modified dictator game, I find that incentivizing a dictator to give at least a small proportion of her endowment drives non-incentivized giving to zero. This reduces overall giving relative to the standard dictator game. Thus, introducing strategic incentives for giving can be counterproductive.
Prof. Aditya C. Moses, Prof. Shaivi Mishra
Algorithms may enable efficient, optimized, and data-driven decision-making, and in fact this vision is one of main drivers of increasing adoption of algorithms for managerial and organizational decisions. However, the fact that these decisions are made by algorithms, rather than by people, may influence perceptions of the decisions that are made, regardless of the qualities of the actual decision-outcomes (Sundar and Nass, 2001). Furthermore, employees who are subjected to algorithmic control may not be satisfied if they believe they have tacit knowledge which the algorithm does not possess. They may also not understand how the algorithm works. All these factors may lead to perception of reduced and agency and cause them to distrust the algorithm. Johannsen and Zak (2021) in multiple studies using neuroscience have shown that trust leads to better productivity of employees and enhances organizational performance.
Therefore, we propose two research questions: 1) What is the impact of algorithmic control on Trust? What factors impact trust? 2) What can organizations do to enhance trust in algorithmic control?
Shalini Jain, Naman Desai, Arindam Tripathy and Viswanath Pingali
The authors of the paper examine whether firms engaged in high-levels of voluntary CSR alter their strategic choices in response to a detrimental public policy – specifically India’s Companies Act (2013) that mandates qualifying firms to spend 2 percent of their 3-year average net profits on CSR. Drawing on the concept of organizational dormancy, the authors argue that firm capabilities, political awareness, exposure to political pluralism, and ownership identity, may explain choice heterogeneity among these firms. The key and non-intuitive finding is that even in the absence of discretionary choice in determining optimal CSR expenditure, firms are less likely to choose dormancy and instead embrace and even surpass the stipulations of the law in their CSR contributions. Also, politically aware firms are more likely to opt for dormancy over compliance. Managerial and policy implications are also discussed.
Jeevant Rampal, Saif Ali Khan
Can social-desirability concerns cause measurement errors in anonymous surveys studying caste issues? We study this question in the context of caste considerations in endogenous study-group formation by students of an Indian business school. Study groups can affect grades, which can affect salaries. We find that more than 40 percent respondents believe that reservation is not justified and that reserved-caste category students have inferior academic ability. We focus on comparing anonymous survey responses with and without an additional ‘veil’ to reduce social desirability concerns in responses. We find that with the additional veil, the self-report of the tendency to exclude reserved-caste category students from one’s study group increases from 5 percent to 22 percent, and the tendency to exclude an inferior-academic-ability student increases from 21 percent to 64 percent. These findings raise fundamental questions of measuring and analysing attitudes related to caste-related issues using anonymous surveys.
Prof. Jeevant Rampal, Fernando Stragliotto
In this paper we study a setting where players of a sequential-move game may have heterogeneous skill. Skill is captured by payoff responsiveness in quantal response models. Mckelvey and Palfrey (1998) provide the Quantal Response Equilibrium for extensive-form games (AQRE) where all players are assumed to have homogeneous skill. In this paper we extend the AQRE by modeling heterogeneous skill and uncertainty and belief-updating (BU) about opponents’ skills. First, we provide an equilibrium model incorporating skill-heterogeneity and uncertainty but not BU—this is called Heterogeneous AQRE (or HAQRE). Next, we incorporate naive disequilibrium belief-updating (BU) to define the HAQRE-BU. We show that these concepts exist, and in the context of finite perfect information games, they are unique, and they yield simple data applicability without fixed-point calculations. We use experimental data from a sequential-move game where players with different experience-levels interacted (Rampal (2020)) to show that modeling heterogeneity and belief updating about skills can each yield better data-fit in such settings.
Puja Bhattacharya, Jeevant Rampal
Many sequential contests are characterized by opponents from a prior stage becoming allies at a later stage. In this paper the authors examine behaviour (theoretically and experimentally) in a two-stage group contest where the first stage comprises of intra-group contests, followed by an intergroup contest in the second stage. Rewards accrue only to the members of the winning group in the inter-group contest, with the winners of the intra-group contest within that group receiving a greater reward. For an example of this setting, consider the behaviour of partisans in the US presidential election. In the primaries, interest groups lobby for their preferred candidate within their preferred political party to determine the presidential nominee. However, in the general election, which is the inter-group stage, interest groups supporting candidates who lost the primary often transfer their support to the nominee from their party to unite against a common rival.
The aim of this paper is to characterize optimal individual effort in such two-stage contests. The authors’ analysis also encompasses contests that are biased, where one group has an exogenous advantage, e.g. an incumbency effect for a party in a political contest. We consider bias in the second stage (inter-group contest), asking how such asymmetry affects effort in both stages.
The unique equilibrium exhibits the following key features. Individual effort in the intergroup contest depends on the outcome in the prior intra-group stage. Individuals belonging to the winning faction from the intra-group stage exert more effort than those who belong to factions that lost. However, the higher effort is associated with higher costs and, consequently, the payoff from a prior win may not always be greater than from a loss. The authors’ analysis highlights that incentives for participation may be absent in the initial stage, even when individuals prefer different alternatives within a group. The authors’ analysis also shows that in the intragroup stage, individuals in advantaged groups exert more effort as compared to disadvantaged groups. Hence, the intra-group contest, if measured by the amount of costly effort exerted, is more intense within the advantaged group.
The authors follow up their theoretical results with an experiment. The experiment includes two treatments - Symmetric and Asymmetric - that vary whether or not the contest is biased. The authors find participants within advantaged groups internalize their group’s second stage advantage in their first stage choices and indeed the intra-group contest in advantaged groups is more intense. The authors also find individuals easily respond to the reward incentives as individuals belonging to winning factions from the intra-group stage exert significantly higher effort in the intergroup contest than those in losing factions. However, the share of group contribution borne by intra-group winners is lower than theoretical predictions. This suggests that the behavioural response to a prior win versus a prior loss may not be fully accounted for by strategic considerations. The theory we develop is very general and has many applications like faculty recruiting, partisan support in US elections, R&D project competition in firms.
Balagopal Gopalakrishnan, Joshy Jacob, Jagriti Srivastava
Using the COVID-19 pandemic as an exogenous shock, the authors examine whether firms engage in opportunistic mergers and acquisitions during uncertainty. Particularly, the authors analyze the inorganic growth strategies of acquiring firms faced with disproportionate pandemic-induced opportunities using a cross-country deal-level data. The authors find a significant increase in the deal completion propensity and deal size, and a decrease in the deal completion time for acquirers that are more amenable to remote working. The effect is more pronounced when both the acquirer and the target are amenable to remote working. The authors’ findings indicate that amenable firms, which were initially reluctant to engage in opportunistic acquisitions, engaged aggressively in the subsequent quarters with an abatement in pandemic-induced uncertainty. The study provides novel insights into the behaviour of acquisitive firms during the pandemic.
Pranjal Srivastava, Joshy Jacob
Short-selling constraints are known to impede information flow into the financial markets, particularly that of negative information. The authors employ “Regulation SHO” as a natural experiment to examine how the lowering of short sale constraints impacts the information flow. Specifically, the authors investigate whether large and small volatility jumps significantly change around the regulatory change, for the treated (Pilot) and control-group (non-Pilot) stocks. The authors find that large (small) jumps significantly decline (rise) as an outcome of the relaxation of short sale constraints, despite an increase in the variance of the Pilot stocks. The decline in the intensity of large jumps and the simultaneous increase in the intensity of small jumps suggest more efficient information flow into the market. Furthermore, the decline is larger for firms facing greater short-sale constraints, indicating that the impact of short-sale constraints are more pronounced for them. Implying that the change in the jump components is brought about by the easing of the short sale constraints, the authors also find that the decline in the large jump intensity is higher for firms with lower conservatism in information disclosure.
Pranjal Srivastava, Joshy Jacob
The paper investigates how the market infers changes in the firm-level discount rate (risk information) in normal and turbulent times. The study focuses on two key sources of risk information, earnings announcements of firms and changes in the market risk premium. The authors employ a recently proposed measure that limits the impact of event risk while estimating the forward-looking risk information from option prices. The authors find that both earnings announcements and the changes in market risk impact firm-level discount rates, but both sources exhibit a significant time variation. The impact of market risk changes is lower in favorable conditions and higher during crisis periods. Using COVID19 as an exogenous shock, the authors show that the influence of earnings announcements becomes insignificant during a crisis. The results suggest lower attention to firmspecific risk factors in times of a systemic crisis, in contrast to normal times.
Prof. Subhadip Roy
A celebrity endorser is “any individual who enjoys public recognition and who uses the recognition on behalf of a consumer good by appearing with it in an advertisement” (McCracken, 1989, p.310). Overall, celebrity endorsement strategy has been found effective in enhancing consumers’ attention (Erdogan, Baker and Tagg, 2001); increasing brand recognition and recall (Misra and Beatty, 1990; Premeaux, 2009); increasing brand familiarity (Felix and Borges, 2014); and enhancing favourable brand evaluations (Keel and Natrajan, 2012; Fleck et al., 2012, Carrilat et al., 2013; Arsena et al., 2014; Felix and Borges, 2014).
Celebrities have been endorsing product brands for over hundred years (Erdogan, 1999) and a celebrity can play a number of roles (McCracken, 1989) in the endorsement process such as an expert, an actor or a testimonial provider, where the celebrity’s involvement with the brand/product acts as a differentiating factor across the modes of endorsements. In recent past, (Keel and Natrajan, 2012). In spite of this increase in celebrity endorsements in practice, research is still inconclusive on the exact effect of endorsement on the consumer. One of the reasons behind this may be the way responses to celebrity endorsements are recorded, that are majorly self-reported.
In this context, neuroscientists have found that hormones such as dopamine and phenylethylamine flood our brains when we see a familiar face, i.e. a celebrity. These hormones trigger positive emotional states that may encourage positive affect towards the promotional message brought to us by those faces (Mucha, 2005). From a researcher’s view, there is a need to determine which celebrity endorser would perform best and this need could be fulfilled if one can empirically test the secretion level of hormones associated with exposure to various celebrities (Fugate, 2007). It should be noted that a search of neuro and celebrity results in only one empirical study that investigates the celebrity endorsement phenomenon using neural imaging techniques. Based on the results of P300 event-related brain potentials, eye-tracking experiments and questionnaire research, the authors concluded that a famous female spokesperson would have a significant effect on the consumers in the case of FMCG advertising (Pileliene and Grigaliunaite, 2017). However, in the same study the authors pointed out several directions of future research such as, investigating the effectiveness of celebrity endorsers at the overall level and including different aspects of the celebrity characteristics.
The financial services sector had restrained from using celebrity endorsements till recent times. However, of late, globally there has been a trend of having celebrity endorsers in financial services such as banks, insurance and mutual funds. Notable celebrities such as Floyd Mayweathers and Paris Hilton in the western context and Sachin Tendulkar and Mahendra Singh Dhoni in India.
Given the premise, the present study aims to explore various aspects of the celebrity characteristics and the celebrity brand pairing to find out the effect of various situations where a celebrity is/may be used by financial services marketers on the brain activity of the consumer. At the present level, the six major questions that the study is aiming to address are:
1. What would be the relative effect of a celebrity vis a vis a generic advertisement for a high-risk product (e.g. mutual fund) for consumers?
2. How would this effect be moderated by the congruent/incongruent celebrity-product combination?
3. Would physical attractiveness of the celebrity overrule the negative effect celebrity-product incongruency?
4. Would celebrity expertise overrule the negative effect celebrity-product incongruence?
5. Would primacy/recency of the endorser moderate this effect?
6. What would be the moderating effect of consumer characteristics in this process (if any)?
The objective of the current research is to study the effectiveness of celebrity endorsements in financial services marketing (for example celebrity congruency with the product brand; celebrity attractiveness; celebrity expertise) and their effect on the consumer’s mind. However, the study would focus on consumers who take their investment decisions on their own or without the help of any other human help (such as peers or advisors). There is ample research that explores the effects of similar factors on consumer’s self-reported measures. However, the present study aims to go beyond self-reported measures and examine the exact neural mechanisms (possibly P300) that may/may not influence the consumer.
Prof. Aditya Moses
Although the brain was once seen as a rather static organ, it is now clear that the organization of brain circuitry is constantly changing as a function of experience. These changes are referred to as brain plasticity, and they are associated with functional changes that include phenomena such as memory, addiction, and recovery of function (Kolb, Gibb, & Robinson, 2003).Research suggests that brain plasticity can help improve performance of individuals within any workplace (Merzenich, 2017); resilience; adaptability and cognitive functioning (Ballesteros, Voelcker-Rehage, & Bherer, 2018). Given, the competitive work environment that organizations face and uncertainty associated with changing environmental conditions. It would help if the organization can help positively influence the brain plasticity of its managers.
Research in the field of plasticity has provided multiple drivers that impact brain plasticity. However, two drivers stand out namely mental training (Singer & Engert, 2019) and physical activity (Chodzko-Zajko, Kramer, & Poon, 2009). Both these drivers can be provided by organizations to their managers at little to no cost. However, the benefits that organizations can derive from them could be immense. However, research has also suggested that different types of training may have differential impacts on brain plasticity (Trautwein, Kanske, Böckler, & Singer, 2020). Therefore, in this study the author proposes to study the impact on these interventions on performance of employees.
Prof. Subhadip Roy
A celebrity endorser is “any individual who enjoys public recognition and who uses the recognition on behalf of a consumer good by appearing with it in an advertisement” (McCracken, 1989, p.310). Overall, celebrity endorsement strategy has been found effective in enhancing consumers’ attention (Erdogan, Baker and Tagg, 2001); increasing brand recognition and recall (Misra and Beatty, 1990; Premeaux, 2009); increasing brand familiarity (Felix and Borges, 2014); and enhancing favourable brand evaluations (Keel and Natrajan, 2012; Fleck et al., 2012, Carrilat et al., 2013; Arsena et al., 2014; Felix and Borges, 2014).
Celebrities have been endorsing product brands for over hundred years (Erdogan, 1999) and a celebrity can play a number of roles (McCracken, 1989) in the endorsement process such as an expert, an actor or a testimonial provider, where the celebrity’s involvement with the brand/product acts as a differentiating factor across the modes of endorsements. In recent past, (Keel and Natrajan, 2012). In spite of this increase in celebrity endorsements in practice, research is still inconclusive on the exact effect of endorsement on the consumer. One of the reasons behind this may be the way responses to celebrity endorsements are recorded, that are majorly self-reported.
In this context, neuroscientists have found that hormones such as dopamine and phenylethylamine flood our brains when we see a familiar face, i.e. a celebrity. These hormones trigger positive emotional states that may encourage positive affect towards the promotional message brought to us by those faces (Mucha, 2005). From a researcher’s view, there is a need to determine which celebrity endorser would perform best and this need could be fulfilled if one can empirically test the secretion level of hormones associated with exposure to various celebrities (Fugate, 2007). It should be noted that a search of neuro and celebrity results in only one empirical study that investigates the celebrity endorsement phenomenon using neural imaging techniques. Based on the results of P300 event-related brain potentials, eye-tracking experiments and questionnaire research, the authors concluded that a famous female spokesperson would have a significant effect on the consumers in the case of FMCG advertising (Pileliene and Grigaliunaite, 2017). However, in the same study the authors pointed out several directions of future research such as, investigating the effectiveness of celebrity endorsers at the overall level and including different aspects of the celebrity characteristics.
The financial services sector had restrained from using celebrity endorsements till recent times. However, of late, globally there has been a trend of having celebrity endorsers in financial services such as banks, insurance and mutual funds. Notable celebrities such as Floyd Mayweathers and Paris Hilton in the western context and Sachin Tendulkar and Mahendra Singh Dhoni in India.
Given the premise, the present study aims to explore various aspects of the celebrity characteristics and the celebrity brand pairing to find out the effect of various situations where a celebrity is/may be used by financial services marketers on the brain activity of the consumer. At the present level, the six major questions that the study is aiming to address are:
1. What would be the relative effect of a celebrity vis a vis a generic advertisement for a high-risk product (e.g. mutual fund) for consumers?
2. How would this effect be moderated by the congruent/incongruent celebrity-product combination?
3. Would physical attractiveness of the celebrity overrule the negative effect celebrity-product incongruency?
4. Would celebrity expertise overrule the negative effect celebrity-product incongruence?
5. Would primacy/recency of the endorser moderate this effect?
6. What would be the moderating effect of consumer characteristics in this process (if any)?
The objective of the current research is to study the effectiveness of celebrity endorsements in financial services marketing (for example celebrity congruency with the product brand; celebrity attractiveness; celebrity expertise) and their effect on the consumer’s mind. However, the study would focus on consumers who take their investment decisions on their own or without the help of any other human help (such as peers or advisors). There is ample research that explores the effects of similar factors on consumer’s self-reported measures. However, the present study aims to go beyond self-reported measures and examine the exact neural mechanisms (possibly P300) that may/may not influence the consumer.
Prof. Aditya Moses
Although the brain was once seen as a rather static organ, it is now clear that the organization of brain circuitry is constantly changing as a function of experience. These changes are referred to as brain plasticity, and they are associated with functional changes that include phenomena such as memory, addiction, and recovery of function (Kolb, Gibb, & Robinson, 2003).Research suggests that brain plasticity can help improve performance of individuals within any workplace (Merzenich, 2017); resilience; adaptability and cognitive functioning (Ballesteros, Voelcker-Rehage, & Bherer, 2018). Given, the competitive work environment that organizations face and uncertainty associated with changing environmental conditions. It would help if the organization can help positively influence the brain plasticity of its managers.
Research in the field of plasticity has provided multiple drivers that impact brain plasticity. However, two drivers stand out namely mental training (Singer & Engert, 2019) and physical activity (Chodzko-Zajko, Kramer, & Poon, 2009). Both these drivers can be provided by organizations to their managers at little to no cost. However, the benefits that organizations can derive from them could be immense. However, research has also suggested that different types of training may have differential impacts on brain plasticity (Trautwein, Kanske, Böckler, & Singer, 2020). Therefore, in this study the author proposes to study the impact on these interventions on performance of employees.
Centre Coordinator
Varuna has over ten years of professional experience. Previously, she was working as Research Associate, Case & Report Writing at IIM Ahmedabad. Varuna began her journey with IIM Ahmedabad in 2012 as Editorial Associate of ‘Alumnus’, the Tri-Annual Magazine for IIMA’s alumni now referred to as ‘The WIMWIAN’. Varuna holds a Master’s Degree in English Literature and a Double Bachelor’s Degree in Psychology and English Literature from St. Xavier’s College, Ahmedabad. Additionally, she also holds a certificate in Journalism from St. Xavier’s College, Ahmedabad. Varuna can be reached at coordinator-nsecbs@iima.ac.in.
Research Manager
Yash has seven years of academic and industrial experience. Yash is passionate about applied neuroscience research and enjoys sports in his spare time. Chakarvarthy has an M.Tech in Cognitive Neuroscience from the Centre for Converging Technologies, University of Rajasthan. Yash is currently employed as a research manager at the institution, where he is responsible for giving research help in the execution of investigations. His expertise lies in various neuro modalities viz. Eye-tracker, fMRI, fNIRS & EEG Signal Processing, and a working knowledge of AI tools assist our centre in providing exceptional services. Yash can be reached at yashc@iima.ac.in.
Research Associate
Kathryn holds an M.Sc. in Neuropsychology and a B.A. in Communication and Media, English and Psychology from Christ University, Bengaluru. Her research interests include social and cognitive neuroscience research using audiovisual stimuli such as advertisements and film. She has experience as an intern at a neuropsychological clinic and a media tech company. Kathryn joined the NSE Behavioral Science in August 2023 and can be reached at kathryns@iima.ac.in.
Research Associate
Eshita holds a Master's Degree in Clinical Psychology and a Bachelor’s Degree in Psychology from St. Xavier's College, Ahmedabad. Additionally, as part of the Career Oriented Programme at Xavier’s, Eshita also holds a Certificate in Counselling. Her research interests span addiction studies, organizational behavior, and decision-making. Eshita joined the NSE CBS in May 2023 and can be reached at eshitas@iima.ac.in.
Research Associate
Veda holds a Master's Degree in Behavioural Economics from the University of Nottingham and has been a part of NSE CBS since March 2023. Her interests lie in the application of behavioral science concepts including behavioural architecture, behavioural design and experimental economics. Prior to this, she worked in the Investment Banking Division at Goldman Sachs as a Senior Analyst for 3+ years and holds a bachelor's degree in Commerce from Stella Maris College, Chennai. Veda can be reached at vedap@iima.ac.in.
Podcast Series by the NSE Centre for Behavioral Science, IIM Ahmedabad
Join the engaging podcast series by NSE Centre for Behavioral Science and listen to the esteemed IIMA faculty open up the latest debates, trends and applications that are to behavioral science in the field of management. Fresh upload every fortnight!
Podcast Series by the NSE Centre for Behavioral Science, IIM Ahmedabad
Join the engaging podcast series by NSE Centre for Behavioral Science and listen to the esteemed IIMA faculty open up the latest debates, trends and applications that are to behavioral science in the field of management. Fresh upload every fortnight!
Faculty Media Interviews
NSE Centre for Behavioral Science in Finance, Economics and Marketing
