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This study considers a contracting problem between a fairness concerned entrepreneur (EN) and a fair-neutral venture capitalist (VC) to explore the effects of asymmetry, agency conflicts and fairness concerns.

The authors construct the model by assuming the EN's risk aversion degree is private information, which is more realistic but ignored in most studies. Under the principal–agent framework, the authors solve the VC's optimal contracting models by identifying the ranges of feasible solution, where the optimal solutions of these models are explicit and nicely reconcile the “private equity” puzzle. Moreover, validity of the optimal solutions is verified by numerical simulations.

In accordance with empirical evidence, information asymmetry lowers the optimal equity share that the VC provides to EN but raises EN's profit due to lower effort disutility and information rent. Moreover, the authors find that the fairness concerns is beneficial for the EN, where it not only increases the EN's optimal equity share, but also enhances the certainty equivalence of the EN's utility regarding its profit. Relative to the benchmark model where the EN's risk aversion degree is common knowledge, the EN's efforts recommended by the optimal contract is less sensitive to the EN's fairness concerns degree when the EN does not actually announce its risk aversion degree.

First, the authors incorporate asymmetry to study a two-period contracting problem and explore how it affects the equity shares allocated to the contractual parties. Second, the authors incorporate fairness concerns and analyze its effect regarding the decision-makings and profits.

This study aims to examine the effects of prior small-scale changes to wealth on subsequent risky choices.

The paper opted for a laboratory experiment in which subjects perform two sequences of risky tasks. In between these two sets, the author transfers money for real for a randomly selected half of the subjects. Data on choices before and after the transfer of money are used to estimate risk attitudes and analyze whether the transfer of money affected attitudes to risk.

The author finds that the money gain does not change subjects' risk preferences – neither in a within- nor in a between-subject design. This suggests that individuals' risky choices are consistent with their constant absolute (CARA) risk aversion preferences, a result that supports a key assumption in recent literature on the calibration critique of decision theories and the view that individuals engage in narrow framing.

Because of the relatively small transfer of money, the research results may lack generalizability.

The paper includes implications for the reference-dependent and other theories that explain how prior outcomes affect risk-taking behavior in sequential problems.

The results are relevant to the research community studying risk-taking behavior as the results shed new light on a well-known result put forward by a seminal paper by Thaler.

This paper fills in an identified gap in the literature which is the need to test the house-money effect in a more realistic setting (over repeated risk-elicitation tasks, with money given outside the lotteries and in a within-subject design).

The author proposes an update to the mean variance (MV) framework that replaces a constant risk aversion parameter using a dynamic risk aversion indicator. The contribution to the literature is made through making the static risk aversion parameter operational using an indicator of market sentiment. Results suggest that Sharpe ratios improve when the author replaces the traditional risk aversion parameter with a dynamic sentiment indicator from the behavioral finance literature when allocating between a risky portfolio and a risk-free asset. However, results are mixed when using the behavioral framework to allocate between two risky assets.

The author includes a dynamic risk aversion parameter in the mean variance framework and back test using the traditional and updated behavioral mean variance (BMV) framework to see which framework leads to better performance.

The author finds that the behavioral framework provides superior performance when allocating between a risky and risk-free asset; however, it under performs when allocating between risky assets.

The research is based on back testing; therefore, it cannot be concluded that this strategy will perform well in real-time circumstances.

Portfolio managers may use this strategy to optimize the allocation between a risky portfolio and a risk-free asset.

An improved allocation between risk-free and risky assets that could lead to less leverage in the market.

The study is the first to use such a sentiment indicator in the traditional MV framework and show the math.

We evaluate the hypothesis of temporal stability in risk preferences using two recent data sets from longitudinal lab experiments. Both experiments included a combination of decision tasks that allows one to identify a full set of structural parameters characterizing risk preferences under Cumulative Prospect Theory (CPT), including loss aversion. We consider temporal stability in those structural parameters at both population and individual levels. The population-level stability pertains to whether the distribution of risk preferences across individuals in the subject population remains stable over time. The individual-level stability pertains to within-individual correlation in risk preferences over time. We embed the CPT structure in a random coefficient model that allows us to evaluate temporal stability at both levels in a coherent manner, without having to switch between different sets of models to draw inferences at a specific level.

Construction projects have become increasingly long, complex and costly with waste and inefficiencies and often fail to achieve the desired results. Integrated project delivery (IPD) is believed to change these problems. A reasonable and fair profit distribution mechanism is a critical factor for ensuring the success of the IPD projects. This study aims to investigate the strategies of all participants in the profit distribution of an IPD project with respect to the factor of the effort level.

This study describes the influence of owners and participants on profit distribution due to their respective efforts in the IPD project alliance. The influence of effort level on profit distribution is discussed based on the Holmstrom-Milgrom model of asymmetric information game theory and principal-agent theory, combined with incentive compatibility (IC) constraints and individual rationality (IR) constraints.

The results show that the optimal level of effort by each participant optimizes the profit distribution of an IPD project. At the same time, in the revenue incentive contract, the effort level of the participants is positively correlated with the profit distribution, proportional to their contribution coefficient and inversely proportional to the square of the cost of their creative activities in terms of effort. Each party of an IPD project can adopt a series of measures to improve their own effort level and choose the optimal level of effort based on the profit distribution, while satisfying their own utility maximization.

This study introduces the Holmstrom-Milgrom model in the principal-agent theory to explore the influence of the effort level on profit distribution in IPD projects. The quantitative model can contribute to establish a fair and efficient profit distribution scheme for the IPD projects.

The purpose of this study to improve the efficiency of customer acquisition and retention through the design of salary information disclosure mechanism.

This study develops a stylized game-theoretic model of delegating customer acquisition and retention, focusing on how firms choose delegation and wage information disclosure strategy.

The results confirm the necessity for enterprises to disclose salary information. When sales agents are risk neutral, firms should choose multi-agent (MA) delegation and disclose their wages. However, when agents are risk averse, firms may disclose the wages of acquisition agents or both agents in MA delegation, depending on the uncertainty of the retention market.

This paper contributes to the literature on delegation of customer acquisition and retention and demonstrates that salary disclosure can be used as a supplement to the incentive mechanism.

In this study, a dynamic contracting model is developed between a venture capitalist (VC) and an entrepreneur (EN) to explore the influence of asymmetric beliefs regarding output-relevant parameters, agency conflicts and complementarity on the VC's posterior beliefs through the EN's unobservable effort choices to influence the optimal dynamic contract.

The authors construct the contracting model by incorporating the VC's effort, which is ignored in most studies. Using backward induction and a discrete-time approximation approach, the authors solve the continuous-time contract design problem, which evolves into a nonlinear ordinary differential equation (ODE).

The optimal equity share that the VC provides to the EN decreases over time. In accordance with the empirical evidence, the EN's optimistic beliefs regarding the project's profitability positively affect its equity share. However, the interactions between the optimal equity share, project risk and both partners' degrees of risk aversion are not monotonic. Moreover, the authors find that the optimal equity share increases with the degree of complementarity, which indicates that the EN is willing to cooperate with the VC. This study’s results also show that the optimal equity shares at each time are interdependent if the VC is risk-averse and independent if the VC is risk-neutral.

In conclusion, the authors highlight two potential directions for future research. First, the authors only considered a single VC, whereas in practice, a risk project may be carried out by multiple VCs, and it is interesting to discuss how the degree of complementarity affects the number of VCs that ENs contract. Second, the authors may introduce jumps and consider more general multivariate stochastic volatility models for output dynamics and analyze the characteristics of the optimal contracts. Third, further research can deal with other forms of discretionary output functions concerning complementarity, such as Cobb–Douglas and constant elasticity of substitution (See Varian, 1992).

The results of this study have several implications. First, it offers a novel approach to designing dynamic contracts that are specific and easy to operate. To improve the complicated venture investment situation and abate conflict between contractual parties, this study plays a good reference role. Second, the synergy effect proposed in this study provides a theoretical explanation for the executive compensation puzzle in economics, in which managers are often “rewarded for luck” (Bertrand and Mullainathan, 2001; Wu et al., 2018). This result indicates a realistic perspective on financing and establishing cooperative relationships, which enhances the efficiency of venture investment. Third, from an empirical standpoint, one can apply this framework to study research and development (R&D) problems.

First, the authors introduce asymmetric beliefs and Bayesian learning to study the dynamic contract design problem and discuss their effects on equity share. Second, the authors incorporate the VC's effort into the contracting problem, and analyze the synergistic effect of effort complementarity on the optimal dynamic contract.

Although outcome sharing in construction is a well-established concept in the literature, there is still an ongoing debate on the most effective approach for distributing project outcomes between an owner and downstream contracting parties (DCPs). To address this issue, this paper aims to investigate an optimal framework for distributing project outcomes among various levels of subcontracting in construction projects. The framework includes contractors, subcontractors, sub-subcontractors and other related parties.

To formulate the optimization problem, the principal–agent model is utilized. The theoretical development is validated through an experiment conducted with employees from road construction companies.

When distributing outcomes among various levels of subcontracting, the sharing should be determined by their contribution to the outcome, effort costs, level of outcome uncertainty and risk preference.

This paper expands on the existing principal–agent theory by incorporating multiple levels of agents, transforming the conventional view of outcome sharing among downstream subcontracting levels into testable hypotheses and well-defined concepts. The paper has practical implications for industry practitioners seeking to effectively allocate benefits and costs throughout a project's subcontracting chain.

The authors believe that comparing individuals to groups' decision making is crucial provided that many important choices in society are made by groups, i.e. committees, governing bodies, juries, business partners and families. This study aims to discuss the aforementioned topic.

The authors analyze risky decision making in the context of the television game show Deal or No Deal – Italian edition. Specifically, the authors scrutinize and compare individual (standard “Deal or No Deal” edition) and group (special edition) choices in the risky choice context provided by programe.

After analyzing contestant's behavior in the standard edition episodes plus a special edition the authors calculate a risk index observing that no statically significant difference is present between individuals' and groups' actions.

In the “Deal or No Deal” special edition contestant were groups of two strangers. It is not uncommon to have couples playing on TV, however the individuals usually know each other well and have relationships in real life. The special edition therefore provides a unique setting (absent to best of the authors’ knowledge in the literature) for investigation and could offer real-world insight. Indeed, in many instances the authors have to contract/make decisions with people the authors do not know/know very little (i.e. occasional business partners, representative at other companies/institutions, insurance/finance advisors, new work colleagues, etc.).

The author presents new estimates of the probability weighting functions found in rank-dependent theories of choice under risk. These estimates are unusual in two senses. First, they are free of functional form assumptions about both utility and weighting functions, and they are entirely based on binary discrete choices and not on matching or valuation tasks, though they depend on assumptions concerning the nature of probabilistic choice under risk. Second, estimated weighting functions contradict widely held priors of an inverse-s shape with fixed point well in the interior of the (0,1) interval: Instead the author usually finds populations dominated by “optimists” who uniformly overweight best outcomes in risky options. The choice pairs used here mostly do not provoke similarity-based simplifications. In a third experiment, the author shows that the presence of choice pairs that provoke similarity-based computational shortcuts does indeed flatten estimated probability weighting functions.