To act fast or to bide time? Adaptive exploration under competitive pressure

Abstract

Competitive pressure affects a wide spectrum of decisions under uncertainty. It forces the individual to balance the value of gathering more information about the quality of potential choice alternatives against the risk that competitors will act first and claim the best options. Although this tradeoff between competition and exploration has long been recognized, little is known about how people adapt their exploration of uncertain options when facing competitive pressure. We examined how competitive pressure affects exploration in the “rivals-in-the-dark” game. Two players simultaneously learn about a set of choice options and compete to claim the best one. Across three studies, we show that people adapt their exploration in response to the structure of the choice environment (including the option set size and the relative number of gains and losses) and in response to repeated competition with the same opponent. Furthermore, we present a model-based analysis showing that their behavior is best described by a compensatory strategy under which the value of further exploration is weighed against the cost of being beaten to the punch by an opponent. The results point to a process of local adaptation whereby people learn to “act fast” based on their experience in a novel competitive environment.

Does overconfidence pay off when things go well? CEO overconfidence, firm performance, and the business cycle

“…This type of decision-making process requires less time in negotiation and communication (Robert Baum and Wally, 2003), resulting in faster decisions. In an expansionary economy phase, making quick decisions can help in launching more and new products, and consequently, help in gaining market share (Markant et al, 2018). For example, Judge and Miller (1991) found that decision-making speed strongly correlates with sales growth and profitability in the biotechnology industry.…”

Decisions from experience: Competitive search and choice in kind and wicked environments

“…Only few studies have started to investigate the role of competitive pressure in people's decisions from experience while simultaneously taking into account additional aspects of the choice ecology Markant et al, 2019). The present approach is the first to systematically vary the statistical properties of choice environments, thus specifically permitting to test the prediction that competitive pressure is a driver of efficiency.…”

“…As in many real-life settings, it may be exactly this combination of a limited choice set (i.e., "only one room left at this price") and the presence of competitors that triggers agency-related concerns. Future research could further examine how competitive search unfolds in other configurations, such as when more choice options are available Markant et al (2019) as well as when more competitors are present -which would, however, substantially complicate the analysis of search and choice in the context of a cost-benefit framework.…”

“…That is, others might simultaneously aim to identify and choose the best out of the same limited set of choice options (Phillips et al, 2014;. The presence of others may lead to challenging trade-offs between pre-decisional search (i.e., exploration) and choice (i.e., exploitation; Hills et al, 2014;Markant et al, 2019).…”