Professor of Decision Sciences
Winner of 2014 Decision Analysis Special Recognition Award
Exploding Offers; Ultimatums; Deadlines; Firm Employment Decisions; Behavioral Economics; Consistency; Perspective Taking; Emotions; Reciprocity; Context Effects;
The authors investigate the use of exploding offers in hiring situations through behavioral experiments. The proposer chooses between issuing an exploding or extended offer, while the responder waits on a better outside alternative.An exploding offer must be accepted or rejected before discovering whether the better alternative will arrive; an extended offer allows the responder to first discover the outcome of the better alternative.If the proposer's offer is accepted, the responder can reciprocate, altering the proposer's payoff. Across multiple studies, a large proportion of proposers issued exploding offers though this resulted in substantially worse payoffs.Losses arose primarily from responders' negative reciprocation after accepting exploding offers. Decision makers exhibited behavioral consistency between their response to offers and the offers they issued. Participants may have overlooked potential negative reciprocity when choosing deadlines; the authors demonstrate that it is possible to make this factor more salient by encouraging explicit contemplation of the outcomes.