Skip to main content
SpringerLink
Log in
Book cover

Complex Systems, Multi-Sided Incentives and Risk Perception in Companies pp 103–150Cite as

Palgrave Macmillan

Belief-Revision, Algorithms and Equity-Based Incentives Under Combined MN-TU, Regret-Minimization and Perception Regimes

  • Chapter
  • First Online:

  • 340 Accesses

Abstract

Equity-Based Incentives (EBIs) include all equity based instruments that organizations issue to their employees, shareholders, or Board members or agents; and which are intended to have some incentive effect. EBIs include Employee Stock Options (ESOs); Dividend Equivalent Rights (DERs); shares of incentive stock with vesting conditions; shares of Deferred Stock with vesting conditions; Contingent Rights; Warrants, equity-linked compensation instruments, etc. The common element of all EBIs is that each has a contingent claim on the organization’s assets, or equity or cashflow.

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   99.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD   129.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Notes

  1. 1.

    See Kato et al. (August 2004), Setterfield (2004), Johnson and Tian (2000, 2004), Cappelli et al. (2019), Wu (2009), OECD (_____), Mehran and Rosenberg (June 2008), Cowgill and Zitzewitz (2014), Chang et al. (2015), Babenko et al. (2011), Babenko and Tserlukevich (2009), Moylan (2000), and Gong et al. (2015).

  2. 2.

    On Regret Theory, see Mannor and Shimkin (2008), Mannor et al. (2011), Viossat and Zapechelnyuk (2013), Bernstein et al. (2013), Foster and Vohra (1999), Perchet (2009, 2011), Stoltz and Lugosi (2005) and Rakhlin et al. (2011). On Approachability, see Abernethy et al. (2011), Perchet (2014), Soulaimani et al. (2009), and Mannor and Perchet (2013).

  3. 3.

    See De la Bruslerie and Deffains-Crapsky (2008), Perry and Zenner (2001), Hermalin (1992), Schmidt (1997), Cunat and Guadalupe (2005); Nickell (1999), Aggarwal and Samwick (1999a, b), and Joh (1999).

  4. 4.

    See Bakshi et al. (2000).

  5. 5.

    See Raith (2003), Dutta (2003), Gilson and Schizer (2003), Thelen (2005), Hertzberg et al. (2010), Martynova et al. (November 2015), Mao and Zhang (2018), Inderst and Laux (2005), Bargeron et al. (2010), John et al. (2008), Anantharaman and Lee (2014), Bakke et al. (2016), Xue et al. (2017), Aggarwal and Samwick (2006), Plosser and Santos (2018), Kim and Ng (2018), Chen et al. (2018), Corgnet and Hernán-González (2018), Brink and Rankin (2013), Corgnet, Gómez-Miñambres et al. (2015, 2018), Corgnet, Hernán-Gonzalez et al. (2015), He et al. (2014), Rubin and Sheremeta (2016), Grant et al. (2018), Norde et al. (2016), Francis et al. (2011), Laux (2015), Nwogugu (2004, 2006, 2007c), and Cai and Singham (2018).

  6. 6.

    See Thelen (2005).

  7. 7.

    See the tangential discussions in Thelen (2005).

  8. 8.

    See Hall and Murphy (2001), Heath et al. (1999), Katz (1990).

  9. 9.

    See Nwogugu (2004), Gilson and Schizer (2003).

  10. 10.

    See comments in Gilson and Schizer (2003). Thelen (2005).

  11. 11.

    Also see comments in DeFusco et al. (1990).

  12. 12.

    See the comments in Thelen (2005).

  13. 13.

    See Nwogugu (2006).

References

  • Abernethy, J., Bartlett, P., & Hazan, E. (2011). Blackwell Approachability and Low-Regret Learning Are Equivalent. Journal of Machine Learning Research: Workshop & Conference Proceedings, 19, 27–46.

    Google Scholar 

  • Accinelli, E., Bazzano, B., et al. (2015). Nash Equilibrium in Evolutionary Competitive Models of Firms and Workers Under External Regulation. Journal of Dynamics & Games, 2(1), 1–32.

    Article  Google Scholar 

  • Acharya, V., & Bisin, A. (2009). Managerial Hedging, Equity Ownership, and Firm Value. RAND Journal of Economics, 40(1), 47–77.

    Article  Google Scholar 

  • Aggarwal, R., & Samwick, A. (1999a). The Other Side of the Trade-Off: The Impact of Risk on Executive Compensation. Journal of Political Economy, 107(1), 65–105.

    Article  Google Scholar 

  • Aggarwal, R., & Samwick, A. (1999b). Executive Compensation, Strategic Competition and Relative Performance Evaluation: Theory and Evidence. Journal of Finance, 54(6), 1999–2043.

    Article  Google Scholar 

  • Aggarwal, R., & Samwick, A. (2006). Empire-Builders and Shirkers: Investment, Firm Performance, and Managerial Incentives. Journal of Corporate Finance, 12(3), 489–515.

    Article  Google Scholar 

  • Anantharaman, D., & Lee, Y. (2014). Managerial Risk Taking Incentives and Corporate Pension Policy. Journal of Financial Economics, 111, 328–351.

    Article  Google Scholar 

  • Andrews, M., Pritchett, L., & Woolcock, M. (2017). Building State Capability: Evidence, Analysis, Action. Oxford: Oxford University Press.

    Google Scholar 

  • Antonio, L., & Coello, C. (2018). Coevolutionary Multiobjective Evolutionary Algorithms: Survey of the State-of-the-Art. IEEE Transactions on Evolutionary Computation, 22(6), 851–865.

    Article  Google Scholar 

  • Arthur, W. B. (1999). Complexity and the Economy. Science, 284, 107–109.

    Article  Google Scholar 

  • Babenko, I., & Tserlukevich, Y. (2009). Analyzing the Tax Benefits of Employee Stock Options. Journal of Finance, 64, 1797–1825.

    Google Scholar 

  • Babenko, I., Lemmon, M., & Tserlukevich, Y. (2011). Employee Stock Options and Investment. Journal of Finance, 66, 981–1009.

    Google Scholar 

  • Bakke, T., Mahmudi, H., et al. (2016). The Causal Effect of Option Pay on Corporate Risk Management. Journal of Financial Economics, 120, 623–643.

    Article  Google Scholar 

  • Bakshi, G., Cao, C., & Chen, Z. (2000). Do Call Prices and the Underlying Stock Always Move in the Same Direction? Review of Financial Studies, 13, 549–584.

    Article  Google Scholar 

  • Bamberger, M., Vaessen, J., & Raimondo, E. (2016). Dealing with Complexity in Development Evaluation. Thousand Oaks: Sage.

    Google Scholar 

  • Banerjee, S., Güçbilmez, U., & Pawlina, G. (2014). Optimal Exercise of Jointly Held Real Options: A Nash Bargaining Approach with Value Diversion. European Journal of Operational Research, 239(2), 565–578.

    Article  Google Scholar 

  • Bargeron, L., Lehn, K., & Zutter, C. (2010). Sarbanes-Oxley and Corporate Risk-Taking. Journal of Accounting and Economics, 49, 34–52.

    Article  Google Scholar 

  • Barraclough, K., & Whaley, R. E. (2012). Early Exercise of Put Options on Stocks. Journal of Finance, 67(4), 1423–1456.

    Article  Google Scholar 

  • Bayoumi, T., Pickford, S., & Subacchi, P. (2016). Managing Complexity: Economic Policy Cooperation After the Crisis. Washington, DC: Brookings Institution Press.

    Google Scholar 

  • Bebchuk, L., Fried, J., & Walker, D. (2003). Managerial Power and Rent Extraction in the Design of Executive Compensation. University of Chicago Law Review, 69(3), 75–762.

    Google Scholar 

  • Bernstein, A., Mannor, S., & Shimkin, N. (2013). Opportunistic Strategies for Generalized No-Regret Problems. Journal of Machine Learning Research: Workshop & Conference Proceedings, 30, 158–171.

    Google Scholar 

  • Bettis, J., Bizjak, J., & Lemmon, M. (2001). Managerial Ownership, Incentive Contracting and the Use of Zero Cost Collars and Equity Swaps by Corporate Insiders. Journal of Financial and Quantitative Analysis, 36, 345–370.

    Article  Google Scholar 

  • Bettis, C., Bizjak, J., & Lemmon, M. (2005). Excise Behavior, Valuation and the Incentive Effects of Employee Stock Options. Journal of Financial Economics, 76, 445–470.

    Article  Google Scholar 

  • Bloom, M., & Milkovich, G. (1998). Relationships Among Risk, Incentive Pay, and Organizational Performance. Academy of Management Journal, 41(3), 283–297.

    Google Scholar 

  • Bogus, C. (1993). Excessive Executive Compensation and the Failure of Corporate Democracy. Buffalo Law Review, 41, 1–10.

    Google Scholar 

  • Bratton, W. (2002). Enron and the Dark Side of Shareholder Value. Tulane Law Review.

    Google Scholar 

  • Brink, A., & Rankin, F. (2013). The Effects of Risk Preference and Loss Aversion on Individual Behavior Under Bonus, Penalty, and Combined Contract Frames. Behavioral Research in Accounting, 25(2), 145–170.

    Article  Google Scholar 

  • Byrne, D., & Callaghan, G. (2014). Complexity Theory and the Social Sciences: The State of the Art. London: Routledge.

    Google Scholar 

  • Cai, W., & Singham, D. (2018). A Principal–Agent Problem with Heterogeneous Demand Distributions for a Carbon Capture and Storage System. European Journal of Operational Research, 264(1), 239–256.

    Article  Google Scholar 

  • Cappelli, P., Conyon, M., & Almeda, D. (2019). Social Exchange and the Effects of Employee Stock Options. ILR.

    Google Scholar 

  • Carter, M., and Lynch, L. (2001). The Effect of Accounting on Economic Behavior: Evidence from Stock Option Repricing (Working Paper). Available at: http://columbia.edu/,mec75/repricing-1abstract.pdf.

  • Çelen, B., & Özertürk, S. (2007). Implications of Executive Hedge Markets for Firm Value Maximization. Journal of Economics & Management Strategy, 16(2), 319–349.

    Article  Google Scholar 

  • Cenci, M., Corradini, M., Feduzi, A., & Gheno, A. (2015). Half-Full or Half-Empty? A Model of Decision Making Under Risk. Journal of Mathematical Psychology, 68–69, 1–6.

    Article  Google Scholar 

  • Chang, X., Fu, K., et al. (2015). Non-Executive Employee Stock Options and Corporate Innovation. Journal of Financial Economics, 115, 168–188.

    Article  Google Scholar 

  • Chen, J., & Leung, W., et al. (2018). Does CDS Trading Affect Risk-Taking Incentives in Managerial Compensation? (Working Papers 2018-19), Swansea University, School of Management, UK.

    Google Scholar 

  • Chica, M., Chiong, R., et al. (2018). A Networked N-Player Trust Game and Its Evolutionary Dynamics. IEEE Transactions on Evolutionary Computation, 22(6), 866–878.

    Article  Google Scholar 

  • Chockalingam, A., & Feng, H. (2015). The Implication of Missing the Optimal-Exercise Time of an American Option. European Journal of Operational Research, 243(3), 883–896.

    Article  Google Scholar 

  • Corgnet, B., Gómez-Miñambres, J., & Hernan-Gonzalez, R. (2015). Goal Setting and Monetary Incentives: When Large Stakes Are Not Enough. Management Science, 61(12), 2926–2944.

    Article  Google Scholar 

  • Corgnet, B., Gómez-Miñambres, J., & Hernán-González, R. (2018). Goal Setting in the Principal–Agent Model: Weak Incentives for Strong Performance. Games & Economic Behavior, 109, 311–326.

    Article  Google Scholar 

  • Corgnet, B., & Hernán-González, R. (2018). Revisiting the Trade-Off Between Risk and Incentives: The Shocking Effect of Random Shocks? Management Science, 65(3), 955–1453.

    Google Scholar 

  • Corgnet, B., Hernán-Gonzalez, R., & Rassenti, S. (2015). Firing Threats: Incentive Effects and Impression Management. Games & Economic Behavior, 91, 97–113.

    Article  Google Scholar 

  • Cowgill, B., & Zitzewitz, E. (2014). Incentive Effects of Equity Compensation: Employee-Level Evidence from Google (Working Paper). Dartmouth University, USA: Department of Economics.

    Google Scholar 

  • Cumming, D., Siegel, D. S., & Wright, M. (2007). Private Equity, Leveraged Buyouts, and Governance. Journal of Corporate Finance, 13, 439–460.

    Google Scholar 

  • Cunat, V., & Guadalupe, M. (2005). How Does Product Market Competition Shape Incentive Contracts. Journal of the European Economic Association, 3, 1038–1082.

    Article  Google Scholar 

  • Dal Forno, A., & Merlone, U. (2010). Incentives and Individual Motivation in Supervised Work Groups. European Journal of Operational Research, 207(2), 878–885.

    Article  Google Scholar 

  • Davis-Stober, C., Brown, N., & Cavagnaro, D. (2015). Individual Differences in the Algebraic Structure of Preferences. Journal of Mathematical Psychology, 66, 70–82.

    Article  Google Scholar 

  • De la Bruslerie, H., & Deffains-Crapsky, C. (2008). Information Asymmetry, Contract Design and Process of Negotiation: The Stock Options Awarding Case. Journal of Corporate Finance, 14(2), 73–91.

    Article  Google Scholar 

  • Deb, K., Zhu, L., & Kulkarni, S. (2018). Handling Multiple Scenarios in Evolutionary Multiobjective Numerical Optimization. IEEE Transactions on Evolutionary Computation, 22(6), 920–933.

    Article  Google Scholar 

  • DeFusco, R., Johnson, R., & Zorn, T. (1990). The Effect of Executive Stock Option Plans on Stockholders and Bondholders. Journal of Finance, 45(2), 617–627.

    Article  Google Scholar 

  • Dmitriev, A., Tsukanova, O., & Maltseva, A. (2017). Modeling of Microblogging Social Networks: Dynamical System vs. Random Dynamical System. Procedia Computer Science, 122, 812–819.

    Article  Google Scholar 

  • Duan, J., & Wei, J. (2005). Executive Stock Options and Incentive Effects Due to Systematic Risk. Journal of Banking & Finance, 29(5), 1185–1211.

    Article  Google Scholar 

  • Durlauf, S. (2012). Complexity, Economics, and Public Policy. Politics, Philosophy & Economics, 11(1), 45–75.

    Article  Google Scholar 

  • Dutta, S. (2003). Capital Budgeting and Managerial Compensation: Incentive and Retention Effects. Accounting Review, 78(1), 71–94.

    Article  Google Scholar 

  • Engstrom, M. (2002). A Note on Rational Call Option Exercise. Journal of Futures Markets, 22(5), 471–482.

    Article  Google Scholar 

  • Espinosa-Avila, E., Longoria, P., & Hernández-Quiroz, F. (2017). Game Theory and Dynamic Programming in Alternate Games. Journal of Dynamics & Games, 4(3), 205–216.

    Article  Google Scholar 

  • Feess, E., & Thun, J. (2014). Surplus Division and Investment Incentives in Supply Chains: A Biform-Game Analysis. European Journal of Operational Research, 234(3), 763–773.

    Article  Google Scholar 

  • Finch, J. (Ed.). (2013). Complexity and the Economy—Implications for Economic Policy. Cheltenham: Edward Elgar.

    Google Scholar 

  • Foster, D. P., & Vohra, R. (1999). Regret in the On-Line Decision Problem. Games & Economic Behavior, 29, 7–35.

    Article  Google Scholar 

  • Francis, B., Gupta, A., & Hasan, I. (2015). Impact of Compensation Structure and Managerial Incentives on Bank Risk Taking. European Journal of Operational Research, 242(2), 651–676.

    Article  Google Scholar 

  • Francis, B., Hasan, I., & Sharma, Z. (2011). Incentives and Innovation: Evidence from CEO Compensation Contracts (Working Paper, Bank of Finland Research Discussion Paper 17). Google Scholar.

    Google Scholar 

  • Garvey, G., & Mawani, A. (2005). Risk-Taking Incentives of Employee Stock Options and the Asset Substitution Problem. Accounting & Finance, 45, 3–23.

    Article  Google Scholar 

  • Gaver, J., & Gaver, K. (1993). Additional Evidence on the Association Between the Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies. Journal of Accounting and Economics, 16, 125–160.

    Google Scholar 

  • Gete, P., & Gómez, J. (2015). Compensation Contracts and Fire Sales. Journal of Financial Stability, 18, 154–171.

    Article  Google Scholar 

  • Gilson, R., & Schizer, D. (2003). Understanding Venture Capital Structure: A Tax Explanation for Convertible Preferred Stock. Harvard Law Review, 116, 874–916.

    Article  Google Scholar 

  • Gong, Q., Liang, J., et al. (2015). Causal Effects of Stock Options on Employee Retention: A Regression Discontinuity Approach (Working Paper). Stanford University, USA. https://siepr.stanford.edu/sites/default/files/publications/547wp_0_1.pdf.

  • Grant, S., Kline, J., & Quiggin, J. (2018). Contracting Under Uncertainty: A Principal–Agent Model with Ambiguity Averse Parties. Games & Economic Behavior, 109, 582–597.

    Article  Google Scholar 

  • Hall, B., & Murphy, K. J. (2001). Stock Options for Undiversified Executives (National Bureau of Economic Research Working Paper 8052).

    Google Scholar 

  • He, Z., Li, S., Wei, B., & Yu, J. (2014). Uncertainty, Risk, and Incentives: Theory and Evidence. Management Science, 60(1), 206–226.

    Article  Google Scholar 

  • Heath, C., Huddart, S., & Lang, M. (1999). Psychological Factors and Stock Option Exercise. Quarterly Journal of Economics, 114(2), 601–627.

    Article  Google Scholar 

  • Hermalin, B. (1992). The Effects of Competition on Executive Behavior. RAND Journal of Economics, 23(3), 350–365.

    Article  Google Scholar 

  • Hertzberg, A., Liberti, J., & Paravisini, D. (2010). Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation. Journal of Finance, 65, 795–828.

    Article  Google Scholar 

  • Ho, C. (2005). Corporate Governance and Corporate Competitiveness: An International Analysis. Corporate Governance: An International Review, 13(2), 211–253.

    Article  Google Scholar 

  • Hofer, C., Jäger, G., & Füllsack, M. (2018). Critical Transitions and Early Warning Signals in Repeated Cooperation Games. Journal of Dynamics & Games, 5(3), 223–230.

    Article  Google Scholar 

  • Ibanez, A., & Paraskevopoulos, I. (2010). The Sensitivity of American Options to Suboptimal Exercise Strategies. Journal of Financial and Quantitative Analysis, 45(6), 1563–1590.

    Article  Google Scholar 

  • Inarra, E., Laruelle, A., & Zuazo-Garin, P. (2015). Games with Perception. Journal of Mathematical Psychology, 64–65, 58–65.

    Article  Google Scholar 

  • Inderst, R., & Laux, C. (2005). Incentives in Internal Capital Markets: Capital Constraints, Competition, and Investment Opportunities. The Rand Journal of Economics, 36(1), 215–228.

    Google Scholar 

  • Jacob, R., & Koschutzki, D., et al. (2013). Algorithms for Centrality Indices. In Network Analysis (pp. 62–82). Volume 3418 of the series Lecture Notes in Computer Science. Berlin: Springer.

    Google Scholar 

  • Joh, S. (1999). Strategic Managerial Incentive Compensation in Japan: Relative Performance Evaluation and Product Market Collusion. Review of Economics and Statistics, 81(2), 303–313.

    Article  Google Scholar 

  • John, K., Litov, L., & Yeung, B. (2008). Corporate Governance and Risk-Taking. Journal of Finance, 63, 1679–1728.

    Article  Google Scholar 

  • Johnson, S., & Tian, Y. (2000). The Value and Incentive Effects of Nontraditional Executive Stock Option Plans. Journal of Financial Economics, 57, 3–34.

    Google Scholar 

  • Johnson, S., & Tian, Y. (2004). Risk-Averse Executives, Multiple Common Risks, and the Efficiency and Incentives of Indexed Executive Stock Options. Journal of Derivatives Accounting, 1(1), 11–28.

    Google Scholar 

  • Karuna, C. (2007). Industry Product Market Competition and Managerial Incentives. Journal of Accounting and Economics, 43(2–3), 275–297.

    Article  Google Scholar 

  • Katz, A. (1990). The Strategic Structure of Offer and Acceptance: Game Theory and the Law of Contract Formation. Michigan Law Review, 89(2), 215–295.

    Article  Google Scholar 

  • Kato, H., Lemmon, M., Luo, L., & Schallheim, J. (2004, August). An Empirical Examination of the Costs and Benefits of Executive Stock Options: Evidence from Japan (Working Paper).

    Google Scholar 

  • Kelly, K. (2010). The Effects of Incentives on Information Exchange and Decision Quality in Groups. Behavioral Research in Accounting, 22(1), 43–48.

    Article  Google Scholar 

  • Kim, S., & Ng, J. (2018). Executive Bonus Contract Characteristics and Share Repurchases. The Accounting Review, 93(1), 289–316.

    Article  Google Scholar 

  • Kirman, A. (2016). Complexity and Economic Policy: A Paradigm Shift or a Change in Perspective? A Review Essay on David Colander and Roland Kupers’s Complexity and the Art of Public Policy. Journal of Economic Literature, 54(2), 534–572.

    Article  Google Scholar 

  • Klos, T., Van Ahee, G., & Tuyls, K. (2010). Evolutionary Dynamics of Regret Minimization. In J. L. Balcázar, F. Bonchi, A. Gionis, & M. Sebag (Eds.), Machine Learning and Knowledge Discovery in Databases (Vol. 6322). ECML PKDD 2010. Lecture Notes in Computer Science. Berlin and Heidelberg: Springer.

    Google Scholar 

  • Kroumova, M., & Sesil, J. (2006). Intellectual Capital, Monitoring, and Risk: What Predicts the Adoption of Employee Stock Options? Industrial Relations: A Journal of Economy & Society, 45(4), 734–775.

    Google Scholar 

  • Kuang, Y. (2008). Performance-Vested Stock Options and Earnings Management. Journal of Business Finance & Accounting, 35(9–10), 1049–1078.

    Article  Google Scholar 

  • Kuehn, C., Malavolta, G., & Rasmussen, M. (2018). Early-Warning Signals for Bifurcations in Random Dynamical Systems with Bounded Noise. Journal of Mathematical Analysis and Applications, 464(1), 58–77.

    Article  Google Scholar 

  • Kuhlman, C., & Mortveit, H. (2014). Attractor Stability in Non-uniform Boolean Networks. Theoretical Computer Science, 559, 20–33.

    Article  Google Scholar 

  • Kyriacou, K., & Mase, B. (2006). The Adverse Consequences of Share-Based Pay in Risky Companies. Journal of Management and Governance, 10(3), 307–323.

    Article  Google Scholar 

  • Laux, V. (2015). Executive Pay, Innovation, and Risk-Taking. Journal of Economics & Management Strategy, 24, 275–305.

    Article  Google Scholar 

  • Liao, W., Lu, C., & Wang, H. (2014). Venture Capital, Corporate Governance, and Financial Stability of IPO Firms. Emerging Markets Review, 18, 19–33.

    Article  Google Scholar 

  • Lupu, I. (2015). The Indirect Relation Between Corporate Governance and Financial Stability. Procedia Economics and Finance, 22, 538–543.

    Article  Google Scholar 

  • Mannor, S., & Perchet, V. (2013). Approachability, Fast and Slow. Journal of Machine Learning Research: Workshop & Conference Proceedings, 30, 1–16.

    Google Scholar 

  • Mannor, S., & Shimkin, N. (2008). Regret Minimization in Repeated Matrix Games with Variable Stage Duration. Games & Economic Behavior, 63, 227–258.

    Article  Google Scholar 

  • Mannor, S., Stoltz, G., & Perchet, V. (2011). Robust Approachability and Regret Minimization in Games with Partial Monitoring. Journal of Machine Learning Research: Workshop & Conference Proceedings, 19, 515–536.

    Google Scholar 

  • Mao, C., & Zhang, C. (2018). Managerial Risk-Taking Incentive and Firm Innovation: Evidence from FAS 123R. Journal of Financial & Quantitative Analysis, 53(2), 867–898.

    Article  Google Scholar 

  • Marquis, J., Gel, E., et al. (2015). Impact of Number of Interactions, Different Interaction Patterns, and Human Inconsistencies on Some Hybrid Evolutionary Multiobjective Optimization Algorithms. Decision Sciences, 46(5), 981–1006.

    Article  Google Scholar 

  • Martyn, I., & Kuhn, T., et al. (2012). Computing Evolutionary Distinctiveness Indices in Large Scale Analysis. Algorithms for Molecular Biology, 7(6). https://doi.org/10.1186/1748-7188-7-6.

    Article  Google Scholar 

  • Martynova, N., Ratnovski, L., & Vlahu, R. (2015, November). Bank Profitability and Risk-Taking (IMF Working Paper).

    Google Scholar 

  • Mehran, H., & Rosenberg, J. (2008, June). The Effect of Employee Stock Options on Bank Investment Choice, Borrowing, and Capital. Federal Reserve Bank of New York Staff Reports, no. 305.

    Google Scholar 

  • Melnik, S., Ward, J., Gleeson, J., & Porter, M. (2013). Multi-stage Complex Contagions. Chaos, 23, 013124. http://dx.doi.org/10.1063/1.4790836.

  • Miklashevich, I. (2003). Mathematical Representation of Social Systems: Uncertainty and Optimization of Social System Evolution. Non Linear Phenomena in Complex Systems, 6(2), 678–686.

    Google Scholar 

  • Minhat, M., & Abdullah, M. (2016). Bankers’ Stock Options, Risk-Taking and the Financial Crisis. Journal of Financial Stability, 22, 121–128.

    Google Scholar 

  • Moylan, C. (2000). The Treatment of Employee Stock Options in Nations Economic Accounts. Bureau of Economic Analysis, US Dept. Of Commerce.

    Google Scholar 

  • Mulder, L., Jordan, J., & Rink, F. (2015). The Effect of Specific and General Rules on Ethical Decisions. Organizational Behavior and Human Decision Processes, 126, 115–129.

    Article  Google Scholar 

  • Nickell, S. (1999). Product Markets and Labor Markets. Labor Economics, 6, 1–20.

    Article  Google Scholar 

  • Norde, H., Ozen, U., & Slikker, M. (2016). Setting the Right Incentives for Global Planning and Operations. European Journal of Operational Research, 253(2), 441–455.

    Article  Google Scholar 

  • Nwogugu, M. (2004). Legal, Economic and Behavioral Issues in Accounting for Stock Options. Managerial Auditing Journal, 19(9), 1078–1118.

    Article  Google Scholar 

  • Nwogugu, M. (2006). Regret Minimization, Willingness-To-Accept-Losses and Framing. Applied Mathematics & Computation, 179(2), 440–450.

    Article  Google Scholar 

  • Nwogugu, M. (2007a). Decision-Making, Risk and Corporate Governance: A Critique of Methodological Issues in Bankruptcy/Recovery Prediction Models. Applied Mathematics and Computation, 185(1), 178–196.

    Article  Google Scholar 

  • Nwogugu, M. (2007b). Some Game Theory and Financial Contracting Issues in Large Corporate Transactions. Applied Mathematics and Computation, 186(2), 1018–1030.

    Article  Google Scholar 

  • Nwogugu, M. (2007c). Equity-Based Incentives: Wealth Transfers, Disruption Costs and New Models. Corporate Control Ownership & Control, 5(1), 292–304.

    Google Scholar 

  • Nwogugu, M. (2013). Decision-Making, Sub-additive Recursive Matching Noise and Biases in Risk-Weighted Index Calculation Methods in In-Complete Markets with Partially Observable Multi-attribute Preferences. Discrete Mathematics, Algorithms & Applications, 05, 1350020.

    Google Scholar 

  • Nwogugu, M. (Revised 2015). Decision Analysis, Conflict Resolution, Optimal Exercise and the Control of Monetization of Equity Based Incentives. Available at www.ssrn.com.

  • Nwogugu, M. (2017). Anomalies in Net Present Value, Returns and Polynomials, and Regret Theory in Decision Making. Palgrave Macmillan.

    Google Scholar 

  • Nwogugu, M. (2019). Indices, Index Funds and ETFs HCI: Exploring HCI, Nonlinear Risk and Homomorphisms. London: Palgrave Macmillan.

    Google Scholar 

  • OECD. (_____). Employee Stock Option Plans: Impact on Transfer Pricing. http://www.oecd.org/tax/transfer-pricing/33700408.pdf.

  • OECD (Ed.). (2016, September 29–30). New Approaches to Economic Challenges—Insights into Complexity and Policy. Paris: OECD Headquarters. https://www.Oecd.Org/Naec/Insights%20into%20Complexity%20and%20Policy.Pdf.

  • Oyer, P. (2004). Why Do Firms Use Incentives That Have No Incentive Effects. Journal of Finance, 59, 1619–1650.

    Article  Google Scholar 

  • Peng, E., Yan, A., & Yan, M. (2016). Accounting Accruals, Heterogeneous Investor Beliefs, and Stock Returns. Journal of Financial Stability, 24, 88–103.

    Article  Google Scholar 

  • Perc, M., Donnay, K., & Helbing, D. (2013). Understanding Recurrent Crime as System-Immanent Collective Behavior. PLoS One, 8(10), e76063.

    Article  Google Scholar 

  • Perchet, V. (2009). Calibration and Internal No-Regret with Random Signals. In Algorithmic Learning Theory (pp. 68–82). Lecture Notes in Computer Science, 5809. Berlin: Springer.

    Google Scholar 

  • Perchet, V. (2011). No-Regret with Partial Monitoring: Calibration-Based Optimal Algorithms. Journal of Machine Learning Research: Workshop & Conference Proceedings, 12, 1893–1921.

    Google Scholar 

  • Perchet, V. (2014). Approachability, Regret and Calibration: Implications and Equivalences. Journal of Dynamics & Games, 2, 181–254.

    Article  Google Scholar 

  • Perry, T., & Zenner, M. (2001). Pay for Performance? Government Regulation and the Structure of Compensation Contracts. Journal of Financial Economics, 62(3), 453–488.

    Article  Google Scholar 

  • Petrohilos-Andrianos, Y., & Xepapadeas, A. (2016). On the Evolution of Compliance and Regulation with Tax Evading Agents. Journal of Dynamics & Games, 3(3), 231–260.

    Article  Google Scholar 

  • Plosser, M., & Santos, J. (2018). Banks’ Incentives and Inconsistent Risk Models. The Review of Financial Studies, 31(6), 2080–2112.

    Article  Google Scholar 

  • Pool, V. K., Stoll, H. R., & Whaley, R. E. (2008). Failure to Exercise Call Options: An Anomaly and a Trading Game. Journal of Financial Markets, 11(1), 1–35.

    Article  Google Scholar 

  • Post, D. G., & Eisen, M. (2000). How Long Is the Coastline of the Law? Thoughts on the Fractal Nature of Legal Systems. Journal of Legal Studies, 29, 545–555.

    Article  Google Scholar 

  • Poteshman, A. M., & Serbin, V. (2003). Clearly Irrational Financial Market Behavior: Evidence from the Early Exercise of Exchange Traded Stock Options. The Journal of Finance, 58(1), 37–70.

    Article  Google Scholar 

  • Prendergast, C. (2002). The Tenuous Tradeoff Between Risk and Incentives. Journal of Political Economy, 110(5), 1071–1081.

    Article  Google Scholar 

  • Raith, M. (2003). Competition, Risk and Managerial Incentives. American Economic Review, 93(4), 1425–1435.

    Article  Google Scholar 

  • Rakhlin, A., Sridharan, K., & Tewari, A. (2011). Online Learning: Beyond Regret. Journal of Machine Learning Research: Workshop & Conference Proceedings, 19, 559–594.

    Google Scholar 

  • Raviv, A., & Sisli-Ciamarra, E. (2013). Executive Compensation, Risk Taking and the State of the Economy. Journal of Financial Stability, 9(1), 55–68.

    Article  Google Scholar 

  • Roberts, S., & Pashler, H. (2005, September). How Persuasive Is a Good Fit? A Comment on Theory Testing (Working Paper #763), University of California Postprints, University of California, USA.

    Google Scholar 

  • Room, G. (2011). Complexity, Institutions, and Public Policy. Cheltenham: Edward Elgar.

    Google Scholar 

  • Rubin, J., & Sheremeta, R. (2016). Principal–Agent Settings with Random Shocks. Management Science, 62(4), 985–999.

    Article  Google Scholar 

  • Salzano, M., & Colander, D. (2007). Complexity Hints for Economic Policy. Milan: Springer.

    Google Scholar 

  • Sánchez-Sánchez, F., & Vargas-Valencia, M. (2018). Games with Nested Constraints Given by a Level Structure. Journal of Dynamics & Games, 5(2), 95–107.

    Article  Google Scholar 

  • Santalo, J. (2002). Substitution Between Product Market Competition and Financial Managerial Incentives (Working Paper), University of Chicago.

    Google Scholar 

  • Schmidt, K. (1997). Managerial Incentives and Product Market Competition. Review of Economic Studies, 64, 191–213.

    Article  Google Scholar 

  • Setterfield, M. (2004). Worker Insecurity and US Macroeconomic Performance During the 1990s. Review of Radical Political Economics, 37(2), 155–177.

    Article  Google Scholar 

  • Shani, Y., Danziger, S., & Zeelenberg, M. (2015). Choosing Between Options Associated with Past and Future Regret. Organizational Behavior and Human Decision Processes, 126, 107–114.

    Article  Google Scholar 

  • Soulaimani, S., Quincampoix, M., & Sorin, S. (2009). Repeated Games and Qualitative Differential Games: Approachability and Comparison of Strategies. SIAM Journal of Control & Optimization, 48, 2461–2479.

    Article  Google Scholar 

  • Stoltz, G., & Lugosi, G. (2005). Internal Regret in On-Line Portfolio Selection. Machine Learning, 59, 125–159.

    Article  Google Scholar 

  • Sun, J., & Fang, Y. (2015). Executives’ Professional Ties Along the Supply Chain: The Impact on Partnership Sustainability and Firm Risk. Journal of Financial Stability, 20, 144–154.

    Article  Google Scholar 

  • Thelen, E. (2005). Dynamic Systems Theory and Complexity of Change. Psychoanalytic Dialogues, 15, 255–283.

    Article  Google Scholar 

  • Tilakaratne, C., Mammadov, M., & Morris, S. (2009). Modified Neural Network Algorithms for Predicting Trading Signals of Stock Market Indices. Advances in Decision Sciences, 2009.

    Google Scholar 

  • Trafimow, D. (2003). Hypothesis Testing and Theory Evaluation at the Boundaries: Surprising Insights from Bayes’s Theorem. Psychological Review, 110(3), 526–535.

    Article  Google Scholar 

  • Viossat, Y., & Zapechelnyuk, A. (2013). No-Regret Dynamics and Fictitious Play. Journal of Economic Theory, 148, 825–842.

    Article  Google Scholar 

  • Williams, C., & Arrigo, B. A. (2002). Law, Psychology and Justice: Chaos Theory and New (Dis)Order. Albany: State University of New York Press.

    Google Scholar 

  • Wiseman, R., & Gomez-Mejia, L. (1998). A Behavioral Agency Model of Managerial Risk-Taking. Academy of Management Review, 23(1), 133–153.

    Article  Google Scholar 

  • Wu, Y. (2009). The Incentive Effect of Repricing in Employee Stock Options. Review of Accounting and Finance, 8(1), 38–53.

    Article  Google Scholar 

  • Wulf, J. (2007). Authority, Risk, and Performance Incentives: Evidence from Division Manager Positions Inside Firms. The Journal of Industrial Economics, 55(1), 169–196.

    Article  Google Scholar 

  • Xue, L., Ray, G., & Zhao, X. (2017). Managerial Incentives and IT Strategic Posture. Information Systems Research, 28(1), 180–198.

    Google Scholar 

  • Young, T. (1997). The ABCs of Crime: Attractors, Bifurcations and Chaotic Dynamics. In D. Milanovic (Ed.), Chaos, Criminology and Social Justice: The New Orderly (Dis)Order. Westport: Praeger Publishers.

    Google Scholar 

  • Zagenczyk, T., Cruz, K., & Woodard, A. (2013). The Moderating Effect of Machiavellianism on the Psychological Contract Breach-Organizational Identification/Dis-identification Relationships. Journal of Business and Psychology, 28(3), 287–299.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Enugu, Nigeria

    Michael I. C. Nwogugu

Authors
  1. Michael I. C. Nwogugu
    View author publications

    You can also search for this author in PubMed Google Scholar

Copyright information

© 2019 The Author(s)

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Nwogugu, M.I.C. (2019). Belief-Revision, Algorithms and Equity-Based Incentives Under Combined MN-TU, Regret-Minimization and Perception Regimes. In: Complex Systems, Multi-Sided Incentives and Risk Perception in Companies. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-44704-3_2

Download citation

  • DOI: https://doi.org/10.1057/978-1-137-44704-3_2

  • Published:

  • Publisher Name: Palgrave Macmillan, London

  • Print ISBN: 978-1-137-44703-6

  • Online ISBN: 978-1-137-44704-3

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation