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Creating instant culture in the lab Colin F. Camerer (Caltech) Roberto Weber (Carnegie-Mellon)*

Creating instant culture in the lab Colin F. Camerer (Caltech) Roberto Weber (Carnegie-Mellon)*. Creating instant culture in the lab Colin F. Camerer (Caltech) Roberto Weber (Carnegie-Mellon)*.

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Creating instant culture in the lab Colin F. Camerer (Caltech) Roberto Weber (Carnegie-Mellon)*

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  1. Creating instant culture in the labColin F. Camerer (Caltech)Roberto Weber (Carnegie-Mellon)* SISL Caltech 20 Nov 03

  2. Creating instant culture in the labColin F. Camerer (Caltech)Roberto Weber (Carnegie-Mellon)* “This corporate culture stuff is great’” the chairman raved at dinner following the talk. Then, turning to his president, he demanded, “I want a culture by Monday.” (Business Week, 1986) SISL Caltech 20 Nov 03

  3. Creating instant culture in the labColin F. Camerer (Caltech)Roberto Weber (Carnegie-Mellon)* “This corporate culture stuff is great’” the chairman raved at dinner following the talk. Then, turning to his president, he demanded, “I want a culture by Monday.” (Business Week, 1986) “Culture” is focal principles for coordination in team games** “How business is done” (informal rules, specify incomplete contracts) Create one facet of culture– “codes”– `instantly’ in the lab Expands behavioral economics to include “pragmatics” Measure culture & efficiency clearly (good culture = $$$) Examples: Founder effects Flexibility vs rigidity Merger failure (Weber & Camerer, Mgt Sci 03) * Assistance from Charlie Hornberger, Ming Hsu, Galen Loram, John Lin (Caltech), Alice Oh (Michigan), Scott Rick (CMU) **Arrow ‘74; Cremer QJE 93; Camerer-Vepsalainen, Strat Mgt J ’88; Kreps ’90 in Alt-Shepsle SISL Caltech 20 Nov 03

  4. Organizational culture • Culture is • Values: what are the accepted choices in coordination games • “How business is done around here” • expressed through • symbols (Nike “swoosh” tattos on “Ekins”) • Personifications (heroes– Feynman; villains) • Rituals (Ditch Day) • Code • Key elements • Develops through shared experience • Can be efficient • Difficult to measure • Functionalist (economic view): • Cultures are informal rules for resolving conflict in the face of contractual incompleteness Examples: “The customer is always right”, Southwest Air ad SISL Caltech 20 Nov 03

  5. Southwest: Culture is an unwritten rulebook SISL Caltech 20 Nov 03

  6. Organizational culture “If some type of information is to be transmitted repeatedly, then it is efficient to generate a specialized code to transmit ideas or fact that recur repeatedly. For instance, sailors find it convenient to speak of a ‘sheet’ rather than a ‘rope that is used to flatten the sail.’ Similarly, in organizations, buildings, jobs, and types of clients will be designated by their own code word. Very often this word will not be new, but rather an existing word used to refer to a very specific object or phenomenon.” Cremer, 1993 SISL Caltech 20 Nov 03

  7. Picture-naming as organizational code-creation • Subjects develop “codes” to describe pictures • `Managers’ describe target pictures • `Employees’ must choose the same pictures • Payoffs = $.60 - $.30/minute - $.50/mistake •  “good” culture is fast & clear • Like when one person “sees” a situation and must quickly convey what the situation is • Emergency room codes (EKG, ICU), police dispatcher (Code Six), military (WMD), restaurants (“radar love”). SISL Caltech 20 Nov 03

  8. Advantages of laboratory experiments • Code can be created rapidly & measured • Experiments create “instant culture”…like “cultures” in Petri dishes • culture “by Monday” • Experiments are exploratory: Trying to bring a vaguely-understood phenomenon to life & study its properties • No structural theory testing…yet. SISL Caltech 20 Nov 03

  9. Why study codes? • Codes are part of culture, & have properties similar to other elements of culture • Part of culture: • Language coordinates activity • Mark who is in, who’s out • Similar properties to other parts of culture (e.g. values) • Socially shared • Takes time to develop • “Clear” culture is efficient • Easy to transmit inside, hard to transmit outside • Turnover & mergers create conflict SISL Caltech 20 Nov 03

  10. Codes are a revealing facet of culture • Colorful examples: • “Will you drink the Kool-Aid?” • Army: SNAFU, BOGSAT, collateral damage, friendly fire, • Alaskan bush pilots: VFR, IFR • Diners: “paint a bow-wow red” “whiskey down…and it’s walking” • Hip-hop slang: “bling”, “biters”, “411”, “Are u feeling me?” • Can be nonverbal: • S. African miners tap dance code (“gumboots”) • Pagers: 038*2**06*537 [upside down: le[t]’s go to bed] • Codes mark who’s in your group and who’s out SISL Caltech 20 Nov 03

  11. Codes are a revealing facet of culture • Colorful examples (translated): • “Will you drink the Kool-Aid?” (Jim Jones Microsoft) • Army: SNAFU (situation all f****d up), BOGSAT (bunch of guys sitting around talk), collateral damage (civilian casualties) • Alaskan pilots: VFR (visual flying rules), IFR (I follow river) • Diners: “paint a bow-wow red” (hotdog with ketchup); “whiskey down…and it’s walking” (rye toast, to go) • Hip-hop slang: “bling” (jewelry), “biters” (imitators), “411” (information), “Are u feeling me?” (understanding) SISL Caltech 20 Nov 03

  12. Software: User-friendliness permits “total immersion” instruction TIMI (one paragraph + quiz) SISL Caltech 20 Nov 03

  13. Examples of pictures SISL Caltech 20 Nov 03

  14. “Uday Rao,” “Cubeville,” “Lady with typewriter” SISL Caltech 20 Nov 03

  15. “Flowers in back,” “Macarena,” “Cupboard in back” SISL Caltech 20 Nov 03

  16. I. Founder effects • Which culture is better? • Centralized / hierarchical / “Top down” • Decentralized / egalitarian / “Bottom up” • Anecdotal evidence of “founder effects” • What would Walt [Disney] do? • George Stigler post-mortem voting • Southwest Airlines: Herb Kelleher, “Personality is culture” • How are you going to replace Herb? • CEO Jim Parker: “I’ll do the drinking, and Colleen will do the smoking” • PS: Colleen was Kelleher’s secretary for 34 yrs: personification • Personification taps power of “facial fusiform area” (FFA) in the brain • Compare founder, egalitarian & see which earns $ • “Strong founder” = same manager every period • “Egalitarian” = rotating managers every period SISL Caltech 20 Nov 03

  17. Results: Founder effects are positive… • “Fixed” manager results in better performance than “rotating” manager in static environment (rounds 1-20) • Avg. earnings in fixed groups: $0.35 • Avg. earnings in rotating groups: $0.29 (p< 0.01) • Significant (p < 0.03) for all 5-period blocks • Observation: Rotating groups do worse…but seem to have more fun. • Conjecture: Does their “camraderie” spill over to cooperativeness? post-exp public good game SISL Caltech 20 Nov 03

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  19. Rotating creates more post-experiment “camraderie” (public good contribution, p=.11) SISL Caltech 20 Nov 03

  20. II. Flexibility vs rigidity • In adapting to a new environment, is it better to have a history of adapting to change? • “Flexible”: Choose from random 8 of 24 city pictures • “Rigid”: Choose from same 8 city pictures •  part II: subset of 8 of 16 new office pictures • Flexibility advantage: Have “code-making” capability • Rigidity advantage: Work harder adjusting to sudden change • Result: Flexible groups faster, earn more at first ($.11 p=.05) SISL Caltech 20 Nov 03

  21. Flexible (pink) do better than rigid (blue)higher payoffs (left) shorter message length (right) SISL Caltech 20 Nov 03

  22. III. Cultural conflict in mergers • Many mergers fail (acquiring co. returns are negative on average, esp for stock-financed deals) • One source may be unanticipated cultural conflict • “Perfect storm” case: AOL Time Warner • “FYIV” (AOL guys leaving) • “Caligula” (Gerald Levin, Time Warner) • “The Wall” (Steve Case, AOL) • “Assholes Online, NavBarNazis” (TimeWarner employees describing AOL) SISL Caltech 20 Nov 03

  23. AOL Time Warner: Deep cultural conflict • “AOL was new money, the Internet set. Time Warner was old money, the established class.” • Time Warner journalists send large attachments on email…hate being forced to use AOL (“internet with training wheels”) • Time Warner boardroom, filled with gifts & history… …demolished by AOL for offices • AOL officials bring t-shirts. Time Warner exec sniffs: “I get my shirts done on Saville Row” • AOL execs vulgar, screaming, pulling knives. Time Warner exec: “We don’t speak like that here” SISL Caltech 20 Nov 03

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  25. Who won? SISL Caltech 20 Nov 03

  26. Results from “merger” study (Weber & Camerer, 2003, Mgt Sci) • Two separate pairs • Start slowly, improve with experience • “Merger”– group of 3 formed from 2 pairs • Merger slows them down • Subjects overestimate speed of merged firm • Average actual time: 86s • Average estimated time: 69s (p < 0.02) • “New” and “old” subjects blame each other SISL Caltech 20 Nov 03

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  29. Interesting tidbit: Cultures can have myths/misnomers What is this? “Lecture”, “classroom”, “cinema”, “crowd inside” SISL Caltech 20 Nov 03

  30. Cultures can have “myths” (cont’d)Wrong! Motorbike traffic in Saigon/Ho Chi Minh City(Cf. “Amazon” river, American “Indians”) SISL Caltech 20 Nov 03

  31. Conclusions • Can create simple organizational processes in the lab • “Firm-level” phenomena/assets • Control for history & measure efficiency • Results: • Having a single founder helps…but may hurt in creating camraderie • Flexible history is better when moving to a new environment • Mergers: Slow down firms surprisingly SISL Caltech 20 Nov 03

  32. New directions • Other experiments & phenomena • Theory! • Similar results in machine learning (Luc Steels) • Hypercode after 500 periods?? Duz it Bcom ths? • Content of code (“subitizing” numbers, ethnicity/gender) • Does 2-way communication help? • Same-gender matching improves efficiency? (Mars/Venus effect) • “Secret code”: Communication with hostile eavesdropping • HealthSouth accounting fraud: • “Team meetings” about filling “the hole” with “dirt” • NYC drug dealers: “what if they elley-say aggies-bay in the otty-spay?” • “you know what I’m a do, too. I’m a open up ackie-jays” • Navajo dinee “windtalkers” in World War II • Mergers with endogeneous quitting • Does quitting by “good communicators” leads to downward spiral? SISL Caltech 20 Nov 03

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  34. The tale of the (ticker) tape SISL Caltech 20 Nov 03

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