internationalization process under risk aversion … · internationalization process under risk...

POLITECNICO DI MILANO

School of Industrial and Information Engineering

Master of Science in Management Engineering

INTERNATIONALIZATION PROCESS UNDER RISK

AVERSION AND AMBIGUITY

Supervisor: Prof. Stefano ELIA

Co-Supervisor: Dott. Valentina ROTONDI

Authors: Serhan ATAKAN - 835259

Emre BUYUK - 836006

A.Y. 2015-2016

II

ACKNOWLEDGEMENTS

Foremost, we would like to express our sincere gratitude and appreciation to our two

supervisors. This thesis would not have been completed fully without the help and support of

Prof. Stefano Elia and Dott. Valentina Rotondi.

Moreover, we are grateful to our participants who were very kind to spare their time to attend

the interviews. This study would not have been realized without their participation. Their

enthusiasm encouraged us exceedingly to complete our study.

Finally, we are very thankful to our friends and family for their cooperation and

encouragement which helped us in completion of this thesis. Especially, we are very grateful

to those who made the effort and spared their time to raise potential participants for our study.

III

TABLE OF CONTENTS

ABSTRACT ............................................................................................................................... VI

EXECUTIVE SUMMARY .......................................................................................................... 8

1. INTRODUCTION................................................................................................................... 14

2. LITERATURE REVIEW ........................................................................................................... 16

3. METHODOLOGY .................................................................................................................. 29

3.1. Experimental Methods in Management ................................................................................ 29

3.2. Methodology of Our Research ............................................................................................... 30

3.2.1. Participant Selection ...................................................................................................... 31

3.2.2. Introduction of Participants .......................................................................................... 32

3.2.3. Introduction of Companies ............................................................................................ 32

3.2.4. Survey Design ................................................................................................................ 35

3.2.5. Experiment Design......................................................................................................... 36

4. RESULTS.............................................................................................................................. 46

4.1. Results of Survey .................................................................................................................... 47

4.2. Results of Risk Aversion Game ............................................................................................... 55

4.3. Results of Two-Stage Oligopoly Game Under Ambiguity ...................................................... 56

5. DISCUSSION AND REMARKS ................................................................................................ 61

6. CONCLUSION ...................................................................................................................... 62

BIBLIOGRAPHY ........................................................................................................................... 65

APPENDIX .................................................................................................................................. 69

IV

LIST OF FIGURES

Figure 1 - Steps in Experimental Method Design ............................................................................. 29

Figure 2 - Compliance List For Selecting Data Collection Method ................................................ 29

Figure 3 - Steps of Methodology and Results .................................................................................... 30

Figure 4 - Age Interval Distribution of the Participants .................................................................. 47

Figure 5 - Education Level Distribution of the Participants ........................................................... 47

Figure 6 - International Experience of the Participants in Years ................................................... 48

Figure 7 - Trustworthiness Level Distribution of Participants ....................................................... 48

Figure 8 - Company Formations ........................................................................................................ 49

Figure 9 - Internationalization Status of the Firms .......................................................................... 50

Figure 10 - Mode of Entry Choices of the Firms .............................................................................. 50

V

LIST OF TABLES

Table 1 - Advantages and Disadvantages of Different Entry Modes .............................................. 16

Table 2 - Risk Aversion Classifications Based on Lottery Choices (Holt and Laury, 2002)......... 27

Table 3 - Criteria For Participant Selection ..................................................................................... 31

Table 4 - Payoff Matrix of Game L, Bad State of the Demand (Georgantzis et al., 2012) ............ 39

Table 5 - Payoff Matrix of Game R, Good State of the Demand (Georgantzis et al., 2012) ......... 39

Table 6 - Risk Aversion Game Lottery Table, Holt and Laury (2002) ........................................... 43

Table 7 - Expected Payoff Difference Table ...................................................................................... 44

Table 8 - Hypotheses ........................................................................................................................... 46

Table 9 - International Experience of the Participants Based on Location ................................... 49

Table 10 - Company Funding Methods ............................................................................................. 49

Table 11 - International Markets Served .......................................................................................... 51

Table 12 - Specific Information About International Operations of the Companies .................... 51

Table 13 - Company Motivations For Internationalization ............................................................. 52

Table 14 - Barriers for Companies In the Internationalization Process ........................................ 52

Table 15 - Unexpected Benefits Experienced During Internationalization .................................... 53

Table 16 - Unexpected Challenges Experienced During Internationalization ............................... 53

Table 17 - Market Success Criteria of Companies to Internationalize........................................... 54

Table 18 - Competitive Advantages of Companies to Internationalize .......................................... 54

Table 19 - Effects of Home Country Characteristics On Internationalization .............................. 55

Table 20 - Answers of Participants to Risk Aversion Game and Statistical Analysis Results...... 56

Table 21 - Distribution of Participants’ Answers for Each Scenario in the Two-Stage Oligopoly

Game ............................................................................................................................................. 57

Table 22 - Risk Aversion Degrees of Participants and Their Choices for Purchasing Information

....................................................................................................................................................... 59

VI

ABSTRACT

In today’s global world, internationalization has a vital importance for businesses than ever

and its influence is significantly rising every day. Companies worldwide are in search for new

international markets to sell their products and services and to increase their revenues. CEOs

and managers of companies have a crucial role in these internationalization decisions. Their

characteristics, backgrounds and experiences are directly influencing their decisions and these

decisions direct the international operations of companies. This study focuses on the

characteristics of the decision makers of companies and how they influence the

internationalization decisions. Specifically, we examine risk aversion degrees and decision

making processes under ambiguity of a sample of managers who are fully responsible in

decision making in their companies. We revisit previous literature and theoretical work on

internationalization decisions and then develop a survey and an experimental model in order

to understand the underlying factors in the decision-making processes. We conduct two

separate experiments on risk aversion and decision making under ambiguity and by doing so,

first we measure risk aversion degrees of our sample subjects and then observe the

relationship between their risk aversion degrees and their decision-making strategies in

internationalization processes under ambiguity in our second experiment. These experiments

were conducted on 4 managers and the results have shown us that more risk averse subjects

tend to prefer FDIs more when entering a new foreign market. The main reason of such a

result is that risk averse subjects make their entry mode decisions considering the risks in a

new foreign market in terms of demand uncertainty and information asymmetries. Choosing

FDIs, they try to minimize these kinds of risks by maximizing their local knowledge in the

new market. Although, in most of the cases, dominant strategies are preferred in

internationalization processes, there are some other factors such as cooperative behavior

which are directly affecting the internationalization decisions and these demonstrate the

existence of relevant behavioral and strategic factors that are not anticipated by a theoretical

model.

VII

ABSTRACT

Nel mondo globale di oggi, l'internazionalizzazione ha un’importanza vitale per le imprese e

la sua influenza è sempre più importante. Le imprese di tutto il mondo sono alla ricerca di

nuovi mercati internazionali per vendere i loro prodotti e servizi e per aumentare le loro

entrate. Amministratori delegati e manager hanno un ruolo cruciale in queste decisioni di

internazionalizzazione. Le loro caratteristiche, backgrounds e esperienze influenzano

direttamente le loro decisioni e queste decisioni guidano le operazioni sui mercati

internazionali delle imprese. Questo studio si concentra sulle caratteristiche dei decision

maker delle imprese. Più nello specifico studia come queste ultime influenzino le decisioni di

internazionalizzazione ponendo l’enfasi sul grado di avversione al rischio dei manager e sui

processi decisionali in condizione di ambiguità usando come campione manager che sono

pienamente responsabili nel processo decisionale nelle loro aziende. Il lavoro rivisita la

letteratura precedente e la letteratura teorica sulle decisioni di internazionalizzazione e quindi

sviluppa un sondaggio e un modello sperimentale al fine di comprendere i fattori alla base dei

processi decisionali. Abbiamo condotto due esperimenti separati riguardanti l’avversione al

rischio e un processo decisionale in condizione di ambiguità e, così facendo, abbiamo prima

misurato l'avversione al rischio dei nostri soggetti e poi osservato il rapporto tra il loro grado

di avversione al rischio e le loro strategie decisionali nei processi di internazionalizzazione in

condizione di ambiguità. Questi esperimenti sono stati condotti su 4 dirigenti ed i risultati ci

hanno dimostrato che i soggetti più avversi al rischio preferiscono la strategia degli FDI

quando devono entrare in un nuovo mercato estero. Anche se, nella maggior parte dei casi, le

strategie dominanti sono da preferire nei processi di internazionalizzazione, ci sono alcuni

altri fattori come il comportamento cooperativo, che determinano direttamente le decisioni di

internazionalizzazione

In t e rn a t i on a l i za t i on P roc es s Un d er R i sk Av ers ion an d Am b igu i ty

8

EXECUTIVE SUMMARY

Internationalization has now been actively realized or put in the agenda of many enterprises

from smallest to largest. There might be several reasons inducing managers and CEOs of

firms to take steps towards internationalization. The reactive reasons can be possibility of

increasing sales, diversifying operations, reducing costs of labor production or supply,

compensating for home market decline or saturation and so on. Thus, companies interpret

internationalization outcomes as a solution to a fact or a set of circumstances that is changing

the normal flow of business such as decreasing margins, stagnant market or expanding

customer base. On the other hand, proactive reasons incorporated with competitive advantage

are just as encouraging as the reactive ones. Taking advantage of other markets growth and

development, moving activities in the value chain to more competitive regions to benefit from

cost advantages, exploiting economies scale and scope and gaining knowledge about other

customer profiles and markets can be given as those reasons.

Today’s global world offers myriad of opportunities to do business in an international scale

thus, the trend moves upward especially in the last decade due to efforts and endeavors of

political and economic institutions. European Union expansion along with its free trade

agreements are the results of those efforts. Besides, costs related to trading and transportation

have been decreased sharply with the improvements in distribution and transportation

channels worldwide as well as in agreements between countries. Consequently, firms are far

more enthusiastic about seeking for new opportunities in the international markets to expand

their products and service.

Internationalization trend has also made companies to focus more on the strategies in the path.

The location, timing and mode of entry are three pillars of strategy formulation for

internationalization. These decisions should be made correctly to maintain accurate

internationalization process. The decision-making process, on the other hand, is generally

managed by executive board in which the CEOs are one of the most important actors

participating overwhelmingly since they have the most power, and directly affect all the

decision-making process.


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Due to scope of our study, entry mode choices are reviewed in a more detailed way. It is

difficult to say that there is a single correct mode of entry which is always the best for a firm

in every situation since each mode has its own advantages and disadvantages that should be

considered carefully by the decision-makers. Internationalizing firm must examine its own

specific case with the circumstances of the company and the target foreign market. The

common modes of entry can be lined up from most committed to least committed as follows:

Greenfield investments, acquisitions, joint ventures, licensing, franchising and exporting. To

emphasize the differences of advantages and disadvantages of two ends of this scale,

greenfield investments imply maximum control, extensive knowledge gain and possible high

earnings as advantages yet highest risk and investment costs and slow entry as disadvantages.

Conversely, exporting implies fast entry and low risk as advantages as opposed to

disadvantages such as low control, low local knowledge. As indicated, choice of entry modes

in a way represents the decision-maker’s risk and ambiguity senses incorporated to

uncertainty.

Even though there are many factors affecting the decisions of CEOs, some studies research on

how the characteristics, capabilities and perceptions of managers are shaping the

internationalization strategies of their companies such as previous experience, age, tenure and

so on. For instance, Williams and Gregoire (2015) suggest that executives tend to put reliance

on similarities when deciding where and when to internationalize whereas they focus on

dissimilarities deciding the mode of entry. In other words, psychic closeness can be

determining factor for the location and timing while entry mode choices are made based on

guarding against cost, risk, control and uncertainty. Correspondingly, some of the studies

focus on certain phenomena such as risk aversion and ambiguity by conducting experiments

on selected managers who are in charge of shaping the decision-making process of their

companies and their risk and ambiguity senses are correlated with their entry mode choices

when they face with an internationalization decision. In fact, Georgantzis et al. (2012)

introduced a representative model illustrating the decision-making algorithm in

internationalization strategies with the aim of discussing the impacts of variability and

uncertainty on the internationalization strategies of firms incorporated to risk and ambiguity

senses of those executives who form those strategies.

In our research, we examine the characteristics and especially sense of risk aversion and

ambiguity of managers who are in charge of the decision-making process in all the critical

situations a company faces and we try to associate their different perceptions with their


10

corresponding strategies and decisions when they have to decide the entry mode of their firms.

In order to do so, we revisit previous literature and theoretical work on international decisions

and then develop a survey and an experimental model to understand the underlying factors in

the decision-making process.

We designed our survey benefiting from several surveys that were applied for similar study

purposes. The experiment, on the other hand, subsists two distinct games, one revealing the

ambiguity aversion, the other revealing the risk aversion of subjects. The representative model

that is developed by Georgantzis et al. (2012) is implemented to one of the games. However,

the selection of participants and thus, instructions are built differently. The other game also

carried same design principles with the experiment that is done by Holt and Laury (2002) to

evaluate the risk preferences of subjects. Ultimately, all participants were initially given a

survey to fill out then they played two different games where they earned specific amount of

prize money from one of the games that they chose at the end of the experiment session.

Overall interview including survey and the experiment phase took around two hours for each

participant. Each participant was interviewed individually under the same environmental

conditions. Since all participants were from Turkey, we conducted experiments in Turkish to

advance communication.

First we present a model of survey to be completed by participants who are dominant decision

maker in their companies founded in Turkey regarding internationalization process and we

intend to have a detailed information about their personal characteristics, backgrounds and

previous experiences. Moreover, we get to have a broad knowledge about their companies.

We collect some critical information such as the industry, products and services produced,

internationalization progress of the firm, motivations, advantages, challenges and expectations

from the business operations by applying this survey.

Then, a two-step experimental design is developed to be conducted with our selected

participant managers. In the first step, an experiment aiming to measure the risk aversion

degrees of our subjects is prepared. This experiment has its origins from a similar one

presented in Holt and Laury (2002). Basically, the participants are asked to choose a point on

a scale where they will prefer a risky option instead of a safe option for the first time and this

is used to measure their risk aversion degree. Two of our subjects are placed in ‘risk averse’

category while the other two are placed in ‘risk lover’ category considering the results of this

experiment.


11

In the second part of this experimental session, an experiment on the same subjects is

conducted in order to interpret their decision-making processes under “ambiguity and

uncertainty” and we try to relate their decisions with their corresponding “risk aversion”

degrees. Another factor which is directly affecting the results is “cooperation theory”.

Therefore, we also want to test how the dynamics of cooperation theory will affect the

decisions of the subjects when they have a dominant strategy in a defined scenario. This

experiment has its roots from the research of Georgantzis et al. (2012) and our aim was to test

the similar hypothesis in a different cultural context. More detailed methodology can be found

in the next chapters.

We selected four executives whose firms are from varying industries. All the participants are

from Turkey specifically, because the study’s aim is to indicate the behavioral effects on

decision-making throughout internationalization process, specifically managed by executives

who have different cultural background compared to extant studies that apply the

experimental method. Our criteria for selecting the participants were basically threefold. We

limited our sample pool to those who manage the firms that are either already

internationalized or have taken serious steps yet not have been operating internationally, and

those who are the main decision-maker in the decision-making process especially for the

internationalization policies, and those who manage specifically firms that are small or

medium sized.

Moreover, we introduce the firms whose executives we interviewed for our study. All the

firms serve in different primary industries from the other. Home country of all firms is Turkey

yet one firm also identifies second home country that is Switzerland. Firms’ annual turnover

varies significantly, however profit margin per industry is considered to make better

evaluations in terms of categorization of firms which all comply our criteria. Three of the

firms are already operating internationally while the remaining firm has taken serious steps

but has not realized its internationalization fully.

As we discuss throughout the report, we expect to show evidence for the hypotheses that are

developed by Georgantzis et al. (2012) with the analysis of the same experiment subjecting

different type of sample. These hypotheses can be found in the end of methodology chapter.

Furthermore, data regarding survey are collected in order to have a deeper understanding of

the personal characteristics, motivations and experiences of our participant managers. Results

of risk aversion game show that two of our participants are categorized as risk averse but the


12

others as risk seeker. The more detailed information regarding results of the survey and

experiment can be found in the results chapter.

Throughout our research for our thesis, we aim at understanding the dynamics affecting the

decision-making progress of companies in their internationalization processes. CEOs and the

managers have the most critical positions and effect in this manner. Their characteristics

including especially the risk and ambiguity senses influence the decision-making process for

the internationalization as well as the future of the companies operating all over the world.

We developed our own methodology after presenting an extensive literature review about the

previous studies and experiments conducted in different countries and in different

circumstances and evaluating their key points.

According to our results the following hypotheses are confirmed:

H1: Local firms will play the dominant strategy in the market game regardless of the foreign

firms’ strategies.

H3: For any risk attitude, an increase in G (cost of having information about the demand in

the local market) implies less observed information purchase.

H4: For any probability of the good state of demand foreign firms are more likely to purchase

information the more risk averse they are.

On the other hand, H2, stating that “informed foreign firms will play the dominant strategy in

the market game.” could not be significantly confirmed.

After obtaining the results it can be confirmed that there is a strong correlation between risk

aversion and tendency to avoid ambiguity when having to decide in uncertain circumstances.

More risk averse managers tend to choose FDI (foreign direct investment) more when

entering into a new foreign market in order to reduce the risks coming from information

asymmetries. Local firms know the dynamics and demand of the market much better than the

new foreign firms. Choosing FDI rather than exporting reduces this information asymmetry

by giving the foreign firm the possibility to get information about the market by making the

necessary investment. Therefore, it can be claimed that risk aversion and ambiguity aversion

degrees of decision makers have a vital effect on the future plans, operations and decisions of

international companies.


13

It is also crucial to state that the implementation of these experimental studies may not give

the same results in every context. First of all, our sample is relatively smaller than those we

tried to re-model. Second, we certainly believe that the cultural background of participants

also directly affects their way of thinking and thus their decision-making methods. For

example, cooperation can have a significant importance and moral value in a culture while

individualism can be much more important than that in another culture. As it is seen in our

results, this can even change the correctness of some hypotheses.

Finally, further questions can be asked to participants in order to examine the other factors

that may underlie in their decision-making processes. With the aim of following an extensive

framework, these factors that are not investigated by current theoretical models should be

studied in other studies. This can be achieved by collaboration of various disciplines such as

industrial economics, psychology, statistics and business management.


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1. INTRODUCTION

In today’s global world, internationalization has an extreme importance for firms and its

significance is increasing continuously. Easiness of doing business in an international scale

has increased significantly especially in the last decade with the help of the efforts of political

and economic institutions in creating new arrangements such as the expansion of European

Union and its free trade agreements with other countries worldwide. Not only trading costs

but also transportation costs have decreased sharply with the continuous development of

distribution and transportation channels worldwide. All this progress has made firms change

their vision and strategies in their business plans and firms began to seek for new

opportunities in the international markets to sell their products and services.

At this point, the importance of the internationalization strategies has increased naturally. This

means that the companies have started to think about what kind of an entry mode would be

more advantageous for them when they decide to enter a new international market. Without a

doubt, one of the most important actors who are in this decision process is the CEO of the

firms. They have the most power in the executive board of the companies and this directly

affects all the decision-making process in a single firm.

There are many factors affecting the decisions of CEOs during this decision-making process.

In our research, we will examine the characteristics and especially sense of risk aversion and

ambiguity of managers who are in charge of the decision-making process in all the critical

situations a company faces and we will try to associate their different perceptions with their

corresponding strategies and decisions when they have to decide the entry mode of their firms.

If we need to explain the entry modes in a foreign market in a more detailed way, we first

have to mention that there are several common modes of entry in a foreign market and each of

them comes with their advantages and disadvantages together. There is not a single correct

mode of entry which is always the best for a firm in every situation. However, the entering

firm has to examine its own specific case with the circumstances of the company and the

target foreign market. The most common entry modes can be presented as the following:

Greenfield investments are established from zero by a foreign firm which has decided to have

its own entity with everything required in the new foreign market.


15

Acquisitions mean acquiring an existing entity which has already been operating in that

foreign market.

Joint ventures are the alliances set up by two companies in a market. In many cases of foreign

direct investments, one of the companies in the joint venture is a local firm knowing the

market characteristics and the other one is the foreign firm entering its target market for the

first time. These firms make an agreement with each other about the sharing of

responsibilities, assets etc. and they decide the percentage of control and shares they will hold

in the joint venture.

Licensing agreements allow foreign firms, to produce a good or service (mostly with an

intellectual property) for a fixed term in a specific market.

Franchising allows a firm to produce its products or services under the name of a well-known

firm with a trademark. Franchisee company pays a certain fee for using the rights of selling

the goods or services of the franchiser company. A firm can enter into a new international

market by giving franchises.

Exporting is one of the easiest and one of the most preferred mode of entry in a new

international market. It is basically the process of selling of goods and services produced in

the home country to other international markets without making any direct investment to the

foreign markets. As mentioned before, all these entry modes have their own advantages and

disadvantages. In order to have a broad view on these positive and negative aspects, we think

it is useful to summarize those in Table 1 illustrated below.


16

Entry Mode Advantages Disadvantages

Exporting Fast entry, low risk Low control, low local knowledge

Licensing and

Franchising Fast entry, low risk, low cost

Less control, legal and regulatory

issues to struggle with

Joint Ventures and

Strategic Alliances

Shared costs, reduced risk,

low investment

High costs of investment,

integration problems between the

partner companies

Acquisitions Fast entry, existing

knowledge and operations

Very high cost of investment,

higher risks, higher resource

commitment

Greenfield

Investments

Maximum control, ability to

develop local knowledge,

high earnings if successful

Highest investment costs, highest

risks, slow entry

Table 1 - Advantages and Disadvantages of Different Entry Modes

After having a more detailed understanding about the foreign market entry modes, it is

convenient to continue with the dynamics of decision making process when choosing the

correct mode of entry in a new international market. As indicated before, in this research our

focus will be on the characteristics of the CEOs or the managers who have the full

responsibility in the decision-making processes of their companies. Besides the personal

characteristics such as age, international experience, previous background etc. we will mainly

narrow our scope on the ambiguity and risk aversion of the individuals. Before continuing to

the methodology of this research it will be useful to have an understanding of the previous

literature relevant to our study.

2. LITERATURE REVIEW

There is an extensive research on how the characteristics, capabilities and perceptions of

managers are shaping the internationalization strategies of their companies. Some of the

studies focus on certain phenomena such as risk aversion and ambiguity by conducting

experiments on selected managers who are in charge of shaping the decision-making process


17

of their companies and their risk and ambiguity senses are correlated with their entry mode

choices when they face with an internationalization decision. In addition to that, some studies

focus on the personal characteristics and capabilities of managers such as their previous

experience, age, tenure in their current company, international experience etc. Then some

correlations are observed between these characteristics and corresponding level of control that

a manager prefers when deciding the entry mode in a new international market.

Herrmann and Datta (2002) focus on the CEO succession processes in the international firms

since CEO succession is seen as an important, unique, and very visible event, one that has

profound impact on the organization and its strategy (Kesner and Sebora, 1994). Moreover,

the post-succession period is typically characterized by formulation and implementation of

strategies where new CEOs seek to have the greatest impact (Ocasio, 1994; Tushman and

Romanelli, 1985). Major organizational and strategic changes often occur after a succession

(Hambrick, Geletkanycz and Fredrickson, 1993), with CEO successors frequently initiating

strategies that reflect their knowledge base and experiences. All of these factors make the

initial period after the CEO succession very critical for the future of the company strategies.

Characteristics of the newly selected CEO has a critical importance in that manner. Hambrick

and Mason (1984) argue that managers' cognitive orientation influences the perceptual

process behind strategic decision making through selective perception, by limiting their field

of vision and by filtering information. This means that the strategic decision making process

of the companies will highly depend on the cognitive perspectives of their new CEO. The

underlying assumption here in these arguments is that experience, personal background, and

education shape managerial cognition, knowledge, and skills in ways that substantially impact

decision making and behavior (Hitt and Tyler, 1991). Not only the personal characteristics but

also the previous functional background of the managers is thought to affect significantly the

future decisions of a manager in terms of how much control he/she prefers to have in the new

international market. Similarly, Song (1982) found functional backgrounds of CEOs to be

related to the diversification strategies of their firms, with those adopting a strategy of internal

diversification typically being led by CEOs with marketing and production backgrounds. In

contrast, firms that pursued acquisitions were more likely to have CEOs with backgrounds in

accounting, finance, and law. Another interesting finding is that Barker and Mueller (2002)

found firm R&D spending to be greater in firms with CEOs who were younger and had output

backgrounds.


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After presenting this previous related literature, Herrmann and Datta (2002) extends these

arguments in the international arena, by stating that one can similarly argue that the

characteristics of successor CEOs should have an important impact on international strategies

and decisions, including the choice of foreign market entry modes. In their paper, Herrmann

and Datta (2002) narrow their scope to the amount of control a firm has in their foreign

market entry. In other words, they simplify the amount of control by dividing it into two

groups; namely, full control and shared control in the entities. Firms can opt for full control

and ownership by choosing greenfield investments or cross-border acquisitions, whereas

licensing and joint ventures entail sharing of control and ownership (Herrmann and Datta,

2002).

The first research hypothesis of Herrmann and Datta (2002) is about the position tenure of the

successor CEO at a company. The term “position tenure” corresponds to the number of years

a professional has spent in that position at that company. In the initial phase of their tenure,

CEOs can be expected to be somewhat risk averse, avoiding risky strategies that might

jeopardize their position (Hambrick and Fukutomi, 1991). Gradually, a manager will adapt

more to the specific tasks of the position, will increase his knowledge and professional

capability and these will make him less risk averse in the upcoming years. Since it is

reasonable to assume that a professional who is more risk taker will highly seek for more

control in a foreign market entity. Accordingly, the first hypothesis of Herrmann and Datta

(2002) is that position tenure of CEO successors will be positively associated with preference

for full-control entry modes. Moreover, it has been argued that managers with greater

educational levels are more likely to possess the cognitive ability to process complex

information, analyze new situations, and discriminate among available alternatives (Wiersema

and Bantel, 1992). This leads to the second hypothesis of Herrmann and Datta (2002) which

claims that educational level of CEO successors will be positively associated with preference

for full-control entry modes. As mentioned before, an output functional background

(marketing, sales, product R&D, entrepreneurship), as defined by Hambrick and Mason

(1984), has been associated with a preference for new products, new markets, and new

opportunities, while a throughput back-ground (accounting, operations, process R&D) with

the need to maintain control and operational efficiency. Therefore, CEOs who have been in

charge of throughput functions during their previous career tend to have a control and

efficiency orientation which will favor the full-control entry mode options for them, with

greater financial and strategic control. Having this as a supporting argument, the third


19

hypothesis is that CEO successors with throughput functional background are more likely to

choose full-control entry modes. Similar to the argument which gives support to the second

hypothesis, there are strong evidences that CEOs who have accumulated knowledge of

foreign cultures and business practices through international experience can be expected to

possess the skills sets that give them greater confidence to operate in foreign business

environments (Black, 1997). Accordingly, the fourth hypothesis is that international

experience of CEO successors will be positively associated with preference for full-control

entry modes. Finally, by considering all the previous hypotheses a fifth one is developed as

the relationships between CEO successor characteristics and entry-mode choice identified in

hypotheses 1-4 will be present in high performing but not in low performing firms. After that

in order to examine the relationships between successor CEO characteristics and choice of

entry mode, logistic regression is used (Hosmer and Lemeshow, 2000; Pindyck and Rubinfeld,

1998). By applying the logistic regression model on the sample of the study, first three

hypotheses were proved statistically. However, no support was found for the hypothesized

relationship between educational level and entry-mode choice. Although the relationship was

in the expected direction, which is positive, it was not statistically significant. This non-

finding can be attributed to the seniority of executives being selected as CEOs (Shenkar and

Zeira, 1992). In addition, in overall, subgroup analyses suggest a stronger fit between entry-

mode choice and CEO demographic characteristics in firms exhibiting superior performance

which also proves the fifth hypothesis.

Herrmann and Datta (2006) explore the relationship between foreign direct investment

methods and CEO experiences in a different way. Based on their sample of 380 foreign

market entry events involving acquisitions, greenfield investments, and joint ventures, they

work to find out how the firm experience, age, international experience and functional

backgrounds of CEOs direct them to choose one of these three kind of foreign direct

investment decisions. If we re-emphasize the main underlying reason when choosing one of

these alternatives, certainly it is the amount of control that the firm will have in this new

international entity. Greenfield investments come with superior control on the entity but with

a serious amount of risk and uncertainty while acquisitions come with a little bit less control

since an existing organization is being acquired. On the other hand, this will mean a less risky

environment and more knowledge about the market dynamics for the acquiring company.

Joint ventures have the least amount of control for an acquiring firm since this means that

only a certain proportion of the decision-making process will be in the hands of one firm.


20

Though, this is the least risky way to make a foreign direct investment in a new international

market. Most of the previous studies examining the relationships between executives’

experiences and strategic choices were grounded in the upper echelons theory proposed by

Hambrick and Mason (1984) which posits that executives’ experiences represent valid proxies

for their cognitions, values, skills, and knowledge base and, consequently, represent powerful

explanations for variations in their strategic choices. Smith and White (1987) have also found

systematic relationships between new CEOs’ functional background experiences and firms’

diversification strategies. One of the most important factors affecting the decision of choosing

the correct mode of entry is the amount of control that the entering firm will have. Control

requires the entering firm to assume decision making responsibility in what is likely to be an

uncertain foreign environment. Control also requires greater commitment of resources,

creating switching costs, and reducing a firm’s ability to change its institutional arrangement

should its choice turn out to be sub-optimal (Anderson and Gatignon, 1986). Another factor

affecting this critical decision is the risk. Hill (2003) argues that acquisitions represent the less

risky option because, unlike in greenfield investments, firms entering via acquisitions buy a

set of assets that are producing a known revenue and profit stream. Moreover, in acquisitions,

entering firms not only acquire tangible resources (e.g. factories, logistics systems), they also

get access to intangible assets, including employees with local know-how. That can

significantly reduce the risk of mistakes caused by lack of knowledge of acquisitions are less

likely to result in incumbent retaliation since, unlike greenfield investments, they do not

negatively impact industry profitability by adding to industry capacity (Caves and Mehra,

1986; Hennart and Park, 1993). It is also important to keep in mind that joint ventures can

protect foreign firms from political risk factors, with the help of the local firm in reducing the

possible unwanted outcomes of political risks.

When building the hypotheses of their research, Herrmann and Datta (2006) consider some

previous evidences and findings about the relationship between the FDI (foreign direct

investment) decision making process and four characteristic factors of CEOs which were

mentioned before in this paper. For example, there were some previous studies that associate

managerial youth with greater risk taking behavior. It has been argued that older executives

are typically more risk averse, exhibiting a preference for greater financial and career security

than their younger counterparts (Child, 1974; Hart and Mellons, 1970). Older executives are

often at a point in their lives and careers where financial and career security is of paramount

importance (Hambrick and Mason, 1984) and consequently tend to avoid riskier ventures.


21

Extending the argument to entry modes, we can expect older CEOs to exhibit greater

reluctance to use modes that entail higher risks. This favors the use of joint ventures over

greenfield investments and acquisitions, and acquisitions over greenfields (Herrmann and

Datta, 2006) and that is the root of the first hypothesis of the paper. With the help of other

evidences coming from previous researches, other three hypotheses of Herrmann and Datta

(2006) are shaped as following: (1a) CEOs with greater firm experience will favour joint

ventures over greenfield investments and acquisitions as FDI entry mode. (1b) CEOs with

greater firm experience will favour acquisitions over greenfield investments as FDI entry

mode. (2a) CEOs with throughput functional experience will favour acquisitions over joint

ventures as FDI entry mode. (2b) CEOs with throughput functional experience will favour

greenfield investments over joint ventures and acquisitions as FDI entry mode. (3a) CEOs

with greater international experience will favour acquisitions and greenfield investments over

joint ventures as FDI entry mode. (3b) CEOs with greater international experience will favour

greenfield investments over acquisitions as FDI entry mode. Afterwards, these hypotheses

were tested by using multinomial logistic (MNL) regression model on the sample data of their

study which includes 78 firms. In the end, they come up with the conclusion stating that

CEOs with less firm experience preferred acquisitions and greenfield investments to joint

ventures and, older CEOs were more likely to opt for joint ventures over greenfield

investments. In addition, CEOs with throughput functional experience favored acquisitions

over joint ventures and greenfield investments. Finally, CEO international experience was

associated with a greater propensity to choose greenfield investments and acquisitions over

joint ventures and also greenfield investments over acquisitions. These conclusions are

followed by some discussions. For example, Herrmann and Datta (2006) argues that a firm

seeking to aggressively expand into foreign markets using a high ownership and control

strategy (e.g. greenfield investment or an acquisition) might be best served by a CEO whose

experiences support such a choice, indicating that such an individual is likely to be relatively

young with less firm tenure but having significant international experience and a throughput

functional background experience.

Furthermore, Ferris et al. (2013) examine the relation between overconfidence of CEOs and

merger and acquisition activity from an international perspective despite the extant studies

that focus on the effects of the same characteristic on mergers and acquisitions taking place

only in U.S. and Western Europe. In their study about the characteristics of CEOs and how

these shape the FDI decision making process of their firms, Ferris et al. (2013) suggest that


22

overconfidence of CEOs affects the corporate acquisitions globally rather than affecting

solely the companies headquartered in U.S. and Western Europe. Thus, behavioral

characteristics of CEOs should be considered in order to understand the decision-making

process of executives during international merger.

Roll (1986) is the first to recognize the impact of overconfidence on decision making process

in which a CEO goes through during a merger activity. Doukas and Petmezas (2007) argue

that overconfidence of CEOs come from self-attribution bias which makes them feel they

have superior abilities in decision making so that they engage in radical transactions.

Moreover, Malmendier and Tate (2008) report that it is more likely that overconfident

executives go after acquisitions when their firms have abundant internal sources. Overall,

many studies on manager overconfidence effects on mergers including these three mentioned

above ignore the international merger and acquisition activity. On the other hand, distribution

of overconfidence among CEOs change by the cultural characteristics of nations such as

language, religion, and legal heritage according to Ferris et al. (2013). These characteristics

influence managerial decision making throughout international merger.

With the aim of measuring the overconfidence of CEOs, Ferris et al. (2013) used the press-

based measure, reviewing the press articles about the firms individually based on several pre-

defined terms. Furthermore, several studies have shown that differences among national

cultures can influence individual behavior significantly. As a result, cultural characteristics

are likely to impact the global distribution of overconfidence as well as how CEOs reflect

their overconfidence in corporate behaviors. Ferris et al. (2013) found that overconfidence

and age are negatively correlated. In other words, older CEOs tend to be more cautious.

Similarly, CEOs who run the firms headquartered in countries where there is common law or

where the national language is English, are more overconfident. They also suggest that

countries whose primary religion is Christianity are likely to have more overconfident CEOs.

More specifically, Ferris et al. (2013) recorded that CEOs of companies located in common

law countries have tendency to be more overconfident with respect to their civil law

counterparts. CEOs of firms are more overconfident in Catholic and Protestant countries than

in the countries whose primary religion is Buddhism. Countries whose main language is

English, Dutch, French or German have more overconfident CEOs. They also found that

Korean or Japanese as the primary languages are inversely correlated to overconfidence.

Apart from these characteristics, low preference of a country for uncertainty avoidance gives

rise to more overconfident CEOs since this type of preference induces the country to be more


23

accepting of change and risk seeker. They further found that the more the level of

individualism of a country is, the more overconfident CEOs there are in that country. Finally,

CEOs of firms are more overconfident in the countries that have low level of long-term

orientation. Because this trait of culture makes countries more open to change and innovation.

Ferris et al. (2013) observed that overconfidence can be influential in the number of merger

offers made by a CEO. Also, overconfident executives tend to make more diversifying

mergers that are more uncertain and more likely to bring negative returns. Because

overconfident CEOs may feel that they have superior decision making ability resulting in

overestimation of value creation from a merger. Thus, they might seek acquisitions that differ

from firm’s core business. Overconfident CEOs make higher number of mergers not only in

Christian countries but also in countries with high level of individualism. High level of

individualism or low level of long-term orientation as characteristics of national cultures urge

executives to make more non-diversifying mergers. However, there is no significant effect of

long-term orientation of a country on number of diversifying merger decisions made by CEOs.

Another observation that is made by Ferris et al. (2013) is that overconfident CEOs are more

likely to view their firms undervalued so they prefer to use the cash to finance mergers instead

of equity. Overconfident CEOs are more likely to cash to finance acquisitions in countries

whose dominant religion is Christianity. Moreover, disproportionate use of cash to finance the

mergers tends to take place when power distance, uncertainty avoidance, or long-term

orientation is low.

Dutta et al. (2016) also discuss the effects of the overconfidence attribution of CEOs on their

decision-making process in an FDI strategy. It argues when and how a multinational company

breaks free from its current cross-border acquisition (CBA) decision patterns and related

entry-mode choices and starts to follow a new original pattern in decision making process.

The presented hypotheses in this paper are as the following: (1) The multinational’s prior

CBA experience is positively related to its subsequent CBA decision. However, the

relationship is non-linear, such that at high levels of prior CBA experience, the positive

relationship increases at a decreasing rate and eventually becomes negative. (2) Access to

organizational slack negatively moderates the relationship between the multinational’s prior

experience and subsequent CBA decision. (3) CEO overconfidence positively moderates the

relationship between the multinational’s prior experience and subsequent CBA decision. (4)

CEO tenure positively moderates the relationship between the multinational’s prior


24

experience and subsequent CBA decision. At this point it will be appropriate to indicate that

the previous CBA experience of a firm is illustrated by a simple model which assumes that

the prior ownership CBA experience of a firm is simply found by subtracting the total number

of minority-owned CBAs from the total number of majority-owned CBAs that a certain

multinational firm has experienced. Here, a majority-owned CBA means that a multinational

firm has acquired more than 50% ownership in their target firm in the agreement of a cross

border acquisition, while a minority-owned CBA means having less than or equal to 50%

ownership. By applying the binary logistic regression model on their sample which includes

4800 acquisitions realized by firms from 72 industries, Dutta et al. (2016) proved their first

three hypotheses while they could not find significant level of support for the fourth one.

Briefly, Dutta et al. (2016) state that prior CBA experience creates path dependencies through

learning and routines, leading to a dominant role of structure in the internationalization

process and at some stage the multinational breaks out of the path dependencies, charting a

new course in its future CBA decisions. Dutta et al. (2016) suggest that in the beginning,

managers will benefit from the patterns of experiential learning based on the early CBA

acquisitions, leading to creation of routines as powerful structures that can aid in subsequent

decision-making. As an interesting outcome, Dutta et al. (2016) found that while CEO

overconfidence does tend to maintain the strategic persistence associated with CBA decisions,

CEO tenure does not.

Williams and Gregoire (2015) believe that studies do not weigh in the distance’s effects

regarding specific dimensions of distance (i.e., cultural, geographic, institutional, etc.) and out

of those dimensions coupled with different internationalization decisions.

Extant studies suggest that internationalization process start with making three main decisions:

location, timing and mode of entry. Internationalizing executives firstly prefer the markets

that are psychically close to their home country over the others. The reason is that executives

who face with uncertainty that comes with internationalization, believe that such process is

easier to go along in terms of cost. It is known that due to high level of uncertainty, firms

begin to internationalize when they have proved themselves in the market and gained

resources. Yet this idea has been challenged by the fact that there are young ventures who

start their internationalization journey early in the beginning of their lifecycles. They

accomplish to do this by benefiting from their competitive advantage and considering psychic

closeness. Also, internationalizing executives make choices on the mode of entry based on

guarding against cost, risk, control and uncertainty (Williams & Gregoire, 2015).


25

In other words, firms tend to put reliance on similarities (distance-reducing commonalities)

when it comes to deciding where and when to internationalize. On the contrary,

internationalizing executives focus on dissimilarities (distance-augmenting differences) when

deciding how to internationalize due to defend themselves against potential risk, cost and

uncertainty. Similarly, an executive tend to prefer less committed entry modes (e.g., exporting

vs foreign direct investment) unless there are less alignable differences he/she perceives

between home country and a target country where to internationalize (Williams & Gregoire,

2015).

Williams and Gregoire (2015) suggest that greater prior international knowledge of an

executive causes him/her to realize and interpret more non-alignable differences. However,

executive’s knowledge may as well help him/her to understand which differences he/she can

overcome if internationalized. Therefore, this does not necessarily mean that the more

differences an informed executive perceive, the more he/she will be reluctant to

internationalize to the target country. In fact, if executives have greater prior knowledge of a

target country, they can more easily assess the impacts of non-alignable differences (Zhang &

Markman, 2001). Consequently, they may favor more committed entry modes such as foreign

direct investment.

The verbal study that is conducted by Williams and Gregoire (2015) shows that participants

of this study are influenced significantly on where, when and how to internationalized based

on distance-reducing commonalities and distance-augmenting differences that are considered

by them. Same study suggests that there is a notable positive correlation between

commonalities and decisions of location and timing of internationalization whereas the

correlation between commonalities and mode of entry is unimportant statistically. Similarly,

alignable differences correlate negatively with mode of entry (less committed to more

committed) but not with location and timing of internationalization. Another result is that

prior knowledge impacts the non-alignable differences perceived such that participants who

have greater prior knowledge of the target countries tend to decide to enter sooner with a

more committed mode of entry. Prior knowledge of a specific country, according to study,

also moderates the effects of perceived differences on the decision of location to

internationalize.

Due to salient nature of commonalities, executives make decisions where and when to

internationalize based on the countries where they perceive as psychically close to home


26

country, ignoring the potential dangers of differences. Williams and Gregoire (2015) believe

that this is not an idiosyncratic bias yet individuals behave this way under the effect of

systematic cognitive tendency. Therefore, executives, consultants and policy experts should

not overlook the risks that are taken when deciding where and when to expand. By contrast,

executives tend to decide how to expand based on distance-augmenting differences while

neglecting the effect of distance-reducing commonalities. The advice that is put forward by

Williams and Gregoire (2015) is that decision makers should aid from contemplating on how

perceived distance-augmenting differences may impact their decisions of location and timing

whereas how perceived distance-reducing differences may influence mode-of-entry decisions.

Up to this point we had a broad understanding about the relationship between the personal

characteristics, experiences and backgrounds of CEOs or managers being fully responsible in

the decision making and the effects of these characteristics and capabilities on the

internationalization processes of multinational firms. Besides these, there are also some very

important experimental research on the risk, uncertainty and ambiguity senses of managers

and how their individual specific perceptions affect their internationalization decisions. Two

of these are our main starting point which shed light to our own research and experiments in

our study.

In the experiments conducted by Holt and Laury (2002), subjects were given choices that

allow conductors to measure their degree of risk aversion. Furthermore, they built up a

functional form regarding risk aversion degree in order to compare and understand the

behavior of subjects under real and hypothetical incentives, for lotteries changing from

several dollars to several hundred dollars (See Table 2 for risk aversion classifications). The

lottery consisted of two different options, one is safe (A) and one is risky (B), was played in

10 steps along with a decreasing expected payoff difference till 10th

step.

Most of the subjects chose the safe option (A) when the probability of the higher payoff was

small. Afterwards, they switched over to risky option (B) without ever choosing option A.

The experiment resulted in sharp increases in the frequencies of safe choices, implying that

risk aversion increases as real payoffs are increased, agreeing with the findings of Binswanger

(1980). However, increases in hypothetical payoffs did not affect the behavior significantly.

This implication contradicts with the supposition made by Kahneman and Tversky (1979),

“people often know how they would behave in actual situations of choice”. Moreover, it

seems that facing the high payoff treatment did not affect the choices made in the subsequent


27

low payoff decision. In other words, unexpected earnings seem to have small or no impact on

the number of safe choices made by subjects. This might be explained by “isolation effect”

although no evidence has been found supporting that claim (Cox & Sadiraj, 2001).

Number of safe

choices

Range of relative risk aversion for

Risk preference

classification

0-1 r < -0.95 Highly risk loving

2 -0.95 < r < -0.49 Very risk loving

3 -0.49 < r < -0.15 Risk loving

4 -0.15 < r < 0.15 Risk neutral

5 0.15 < r < 0.41 Slightly risk averse

6 0.41 < r < 0.68 Risk averse

7 0.68 < r < 0.97 Very risk averse

8 0.97 < r < 1.37 Highly risk averse

9-10 1.37 < r Stay in bed

Table 2 - Risk Aversion Classifications Based on Lottery Choices (Holt and Laury, 2002)

Georgantzis et al. (2012) discusses the impacts of variability and uncertainty on the

internationalization strategies of firms. This discussion is illustrated on two different types of

internationalization strategies namely, exporting and foreign direct investment (FDI). An

external factor arising from market uncertainty and an internal one arising from risk aversion

behavior of decision makers are affecting the whole decision making process and are critical

factors for individuals when they are deciding which strategy to choose in the

internationalization process. Firstly, a representative model is introduced to illustrate the

decision-making algorithm in internationalization strategies. In this model trading costs

deriving from exporting strategy and fixed setup costs deriving from FDI strategy are the

parameters along with the variables of market uncertainty and risk aversion. In addition to that,

since there is almost no previous experimental work testing the theories of international

oligopoly, an experimental design is built relating to Oechssler and Schipper (2003)

differentiating by letting the subjects to decide whether to invest in a costly strategy to remove

the uncertainty and making them choose one of the output producing strategies under bad and

good state of demand characteristics considering the other local or foreign player in the

market with the assumption of no information asymmetries. According to their decisions,

experiment subjects will get pre-determined payoffs which are presented to them before. The


28

critical point in this experiment is that FDI is a costly but uncertainty-reducing strategy,

whereas exports involve lower costs but a higher uncertainty concerning the demand

conditions in the local market.

This experiment shows that, for most of the times, local firms play their dominant strategy

regardless of the foreign firms’ strategies and informed foreign firms will play their dominant

strategy too. Another finding is that a more risk averse uninformed foreign firm has more

tendency to play the strategy of lower output. Besides, an increase in G (fixed cost of FDI)

implies less observed information purchase decision made. Moreover, initially informed firms

significantly vary their decisions according to the value of G. Specifically, in the low-G

treatment they abandon the dominant strategy B, in favor of cooperative market behavior in

almost twice as many cases as they do in the high-G treatment. Initially uninformed players

who have decided to become informed by paying a lower G, cooperates almost twice as

frequently than when having to pay a higher G. In addition, the behavior of initially

uninformed players who have decided to remain uninformed, significantly varies under

different values of G. To be specific, a lower G option makes an exporting firm which had

decided to remain uninformed behave significantly less cooperatively than under a higher one.


29

3. METHODOLOGY

3.1. Experimental Methods in Management

Experimental method is a systematic and scientific approach to research in which the

researcher manipulates one or more variables, and controls and measures any change in other

variables. There are several steps involved conducting an experimental study which can be

shown as follows:

There are several data collection methods in management research. One of which is

experimentation and it is vital for the study’s aim to collect healthy data to test hypotheses

that are put forward with the study itself. Lancaster (2005) suggests that three main criteria

should be checked for data quality: validity, reliability, and generalizability. Validity

underpins whether the data collection or research method measures what must be measured

while reliability checks whether a particular data collection approach gives the same results

under different circumstances. Generalization, on the other hand, is another form of validity

with a difference that results from data can be generalized to other situations.

Identify and define the problem

Review relevant literature

Formulate hypothesis and

deduce their consequences

Construct and experimental design

Conduct the experiment

Compile raw data and condense to

usable form

Present findings and conclusions

Purpose of research

Researcher's skills

Cost/budgets Time Availability Consultants' preferences

Client preferences

Ethical, legal and other

issues

Figure 1 - Steps in Experimental Method Design

Figure 2 - Compliance List For Selecting Data Collection Method


30

Lancaster (2005) indicates that before deciding the data collection method, several

compliance steps should be considered which are shown above. After these compliance

degrees have been matched up with the data collection method, necessary steps for raising

data can be taken.

3.2. Methodology of Our Research

In this section, the procedure we conducted to make qualitative and quantitative analysis for

ambiguity and risk aversion inclinations of the participants as well as for other effects on

internationalization process is laid out.

Methodology consists of two major parts: survey and experiment. We designed our survey

benefiting from several surveys that were applied for similar study purposes. The experiment,

on the other hand, subsists two distinct games, one revealing the risk aversion of subjects and

the other showing their decisions under ambiguity and uncertainty. One of these games that

participants attended was replicated exactly as it is designed in the study of Georgantzis et al.

(2012). However, participant selection for our study was done differently. The other game

also carried same design principles with the experiment that is done by Holt and Laury (2002)

although there are several changes had been made by us to simplify and shorten the game

process.

Consequently, all participants were initially given a survey to fill out then they played two

different games where they earned specific amount of prize money from one of the games that

they chose at the end of the experiment session. Overall interview including survey and the

experiment phase took around 2 hours for each participant. Each participant was interviewed

individually under the same environmental conditions. To avoid complications, each

participant was given a unique identification number in the beginning of interviews.

Participants entered their answers on computer during interviews. All the answers were

automatically transferred to an Excel document after all the interviews completed. Since all

Survey and Experiment

Design

Survey and Experiment Application

Preparation for Analysis

Statistical Analysis

Results and Hypotheses

Testing

Figure 3 - Steps of Methodology and Results


31

participants were from Turkey, we conducted experiments in Turkish to advance

communication. Survey questions and all the instructions of experiment were also translated

into Turkish. The design of survey along with two games in the experiment will be given in

detail throughout this section of report.

3.2.1. Participant Selection

The participants for this study were four executives of four different firms from varying

industries. All of them were from Turkey specifically, because the study’s aim is to indicate

the behavioral effects on decision-making process throughout internationalization process,

specifically managed by executives who are from an emerging country. Our criteria for

selecting the participants were basically threefold as it can be seen in Table 3. We focused on

firms that are either internationalized or have taken some steps for internationalization namely

considering it seriously but not yet internationalized. Moreover, we conditioned that a

participant of this study must be the main decision-maker in the company especially for

internationalization policies. At last, we solely aimed at small or medium sized enterprises

since decision-making process for significant operations such as internationalization in large

companies is usually carried out collectively rather than depending upon one person. In this

case, experiment and survey should be designed differently as our data collection method is

designed to reveal the behavioral effects of an individual participant namely ambiguity and

risk aversion on decision-making influencing internationalization process substantially.

A participant

must

work at a firm that is either internationalized or in the

process of internationalization

be main decision-maker at the firm regarding

internationalization

work at a firm that is either small or medium sized

enterprise

Table 3 - Criteria For Participant Selection

Having set the aim of our study as well as the boundaries of participant selection, we drafted

an email explaining our study and the criteria and firstly sent it to the several prominent


32

universities’ incubators and technology centers where they hold multiple small and medium

sized enterprises. After that, we got in touch with our first and second degree of our contacts.

Doing several pre-interviews for detailed explanation of our study and to ensure whether the

potential participants satisfy the criteria for our study, we ended up raising four willing

subjects.

3.2.2. Introduction of Participants

Participants of this study are all from Turkey and aged from 30 to 53. They all have

Bachelor’s degree yet one has also Master’s degree. Three of the subjects are founders of their

firms whereas one of them is a dominant decision-maker in terms of decisions related to

internationalization tasks. All participants but one had more than one year experience abroad

with the purpose of study and work. The overseas experiences are generally completed in

Western countries namely in Europe and North America yet one subject has also work

experience in Middle East, Iran. Interestingly, prior work experience in Iran led this

participant to run his business there as well currently. Herrman and Datta (2006) suggest that

executives make decisions fitting between desired strategies including expanding

internationally and their experiences.

Each participant’s company belongs to a different industry from the other. The industries are

mainly those following: industrial kitchen equipment, hard discount retail, information

technologies and jewelry.

3.2.3. Introduction of Companies

In this section, we introduce the companies of participants whom we carried out the

interviews for our study. These companies serve in different primary industries from the other.

Home country of all firms is Turkey yet one firm has also another home country which is

Switzerland. Firms’ annual turnover varies significantly, however considering profit margins

due to industry each operates, they can all be put in “small-medium sized enterprises”

category. Except for one, firms can be considered quite young. All the firms had started their

businesses with at least 2 founders although two of them currently have one founder. Three

participants we interviewed stated that their companies were already operating internationally

nonetheless, one said his company was considering it seriously and took some steps but not

operating internationally yet. Two of the firms that are operating internationally chose

exporting as mode of entry whereas the other decided to enter the market with Foreign Direct

Investment. On the other hand, the firm which is not operating internationally prefers to enter


33

the market with exporting. Overall, the firms are serving in European, Middle Eastern and

Asian markets internationally while one of them focuses solely on Iranian market. Motivation

to expand for all firms is growth-oriented generally. Two of the companies stated that

language and cultural differences would be main problems for their internationalization or for

expanding more.

Furthermore, the detailed descriptions of companies are given to analyze companies

individually.

Mavi Alev:

The participant representing this firm is the manager who attends to tasks that are assigned

internationally to firm. He is the sole decision-maker in internationalization steps of the firm.

Mavi Alev operates in the primary industry “Industrial Kitchen Equipments”, and is a small-

sized enterprise. The firm produces wide variety of industrial kitchen appliances notably

chicken baking oven, food cart, baked potato furnace and so on. It targets all types of

corporations in the food industry. The firm started running business with founder’s own funds

and assets in fact, company was formed as a family owned business. Headquarter and

production site of firm are located in Bursa, Turkey. There are currently 16 personnel working

for the company including 2 managers responsible of administration and the others in labor

force. Mavi Alev has been serving the market for 33 years and currently, it has an annual

turnover amounted to €300.000. In the beginning phase of the company, there were two

founders however, due to decisions two founders made together, one of them sold his shares

to the other founder who currently owns the company. Owner of the firm has delegated most

of the tasks to his son whom we interviewed for our study. However, he contributes to

decision-making relating to shaping business strategies. Thus, there are three personnel who

are in charge of decision-making in shaping business strategies.

Azizler:

Azizler is in the industry of Hard Discount Retail Supermarket Chains, operating as a medium

sized enterprise. The firm offers retailing for basic consumption goods such as fast moving

consumer goods to the end consumer. Firm’s main consumer target is low-and-middle-income

group of consumers in Iran. Moreover, the firm has been funded by angel investors since its

foundation. As a matter of fact, company was formed through joint venture. The firm does not

only identify its home country as Turkey but also includes Switzerland, since one of the


34

founders of Azizler has ties to a Swiss investor who also funds the firm, and so that the firm

takes advantage of Swiss trade agreements. Firm has overall 15 personnel in its organization

which is formed hierarchically with four founders in administration. Besides, Azizler has an

annual turnover of €80 million, serving approximately 400 clients in Iran per shop. However,

due to industry where the firm operates, the profit margin per sales is quite small. The firm

has entered the Iranian market one year ago and that time also corresponds to foundation date.

Azizler started its business with four founders and none of those has left the firm so far. Thus,

only those four founders are in charge of decision making in shaping business strategies.

Bilgi A.Ş.:

The primary industry of Bilgi A.Ş. is Information Technology, specifically IT solutions for

corporate companies. The company offers services namely, cash register renting, process

management software, data management software to firms operating in retail industry. The

target customer profile is firms operating in retail industry. Bilgi A.Ş. does not only have

external funders but also several investors fund the firm. Moreover, the firm identifies itself as

a goal-oriented company in terms of formation. Bilgi A.Ş. is headquartered in Istanbul,

Turkey therefore its home country is Turkey. There are currently three personnel employed by

the firm with an organizational scheme namely, two divisions (sales and software architecture)

reporting to general manager. Annual turnover of Bilgi A.Ş. is €2.5 million, serving currently

500 clients in Turkey. Thus, the firm can be put in a medium-sized enterprise category. Bilgi

A.Ş. has been in the business for one year and started its journey with three founders whom

still work for the company. There are, on the other hand, two professionals who oversee

decision-making in shaping business strategies.

Ulusoy Gold:

Ulusoy Gold serves in the industry of Jewelry primarily. More specifically, company does

jewelry sales to end consumers on the internet. The firm basically offers variety of gold and

silver jewelry as well as accessories online where end customers can preview and order

through an ecommerce website. The firm identifies its target customer profile as consumers

aged between 25-50 who are online shoppers. The firm also adds that consumers who live far

from city centers are also interested in jewelry ecommerce websites and do shopping heavily.

The firm has been budgeted by the founder’s own funds and assets and identifies itself as a

startup company. Ulusoy Gold is located and administered in Istanbul, Turkey. Currently,

there is only one employee in the firm who is founder himself. He manages everything from


35

procurement to logistics. Additionally, the firm has an annual turnover of €205.000. Due to

nature of its industry, the sales bring relatively small profit margin. Ulusoy Gold serves

approximately 50 clients per month and it has been doing business for 2.5 years. The firm was

founded by two yet after a while, founders parted their ways, one selling his shares to the

current founder. Thus, there is today only one professional who is in charge of decision-

making in shaping business strategies.

3.2.4. Survey Design

The survey was basically designed due to understand and gather more information about the

participants’ characteristics as well as the firms they manage. Conceptual design of the survey

starts with the title “A Behavioral Study on Characteristics Of Managers In The Process Of

Internationalization” and it follows the brief explanation of what survey consists and aims.

This explanation follows as:

“This study is designed by two Master Degree students in Management

Engineering department of Politecnico di Milano. The aim of the study is to

understand the underlying effects of behavioral characteristics of founders and/or

managers who have the full responsibility in decision making processes of their

companies. Specifically, internationalization of firms will be our main focus. The

answers of this survey will be kept in supreme confidentiality and will be used for

only academic purposes. This survey consists of three main sections namely

individual, organizational and internationalization aspects. If requested, the

results of this study may be shared with the participants. It is estimated that the

survey will not take more than one hour. We truly appreciate your time and

participation in this study.”

We used several question preparation techniques in the survey including open-ended, multiple

choice, contingency questions and Likert response scale. In total, there are 41 questions,

however number of questions must be answered depends on the respondents’ answers to

contingency questions (please see Appendix). The questions in the survey are grouped in

three major sections where respondents answer the questions section by section.

First section respondents must answer is individual aspects. In this section, questions are

prepared in order to collect information regarding individual characteristics. Therefore,

questions like age, marital status, education level and so on are included in this section.


36

Furthermore, questions about trustworthiness and international experiences of respondents are

added to this part. Overall, there are 12 questions in this part (please see Appendix).

In the second section of survey, respondents face questions regarding organizational aspects.

In this part, they are asked questions such as company name, role in the company and so on.

These questions are designed aiming at collecting information regarding the firms and how

those firms organized financially and strategically. As an illustration, we ask respondents their

companies’ annual returns, number of people working, target customer segments etc. to

understand the firm’s organizational structure clearly. In this section, respondents must

answer 14 questions (please see Appendix).

Third and final section of survey is called Internationalization Aspects. In this part, we get to

ask respondents the questions in term of their companies’ internationalization process. This

part starts with a contingency question where the next questions respondents will answer

change according to the answer they give to this particular question. Questions in this part are

vital to our study since a firm’s internationalization history and structure are investigated here.

Main questions in this part examine mode of entry, internationalization revenue percentage,

motivations, challenges and so on. Especially, last five questions in this section give us crucial

insights on decision-making for internationalization from the respondents’ perspective.

Overall, there are 13 questions in this part (please see Appendix).

3.2.5. Experiment Design

In the experiment phase, participants were subjected to play two different games. In terms of

content, duration of the first game was longer than the second one. However, we first applied

the second game to elicit participants’ preference towards risk, then we applied the first game

as the procedure was set this way by Georgantzis et al. (2012). Before starting the games, we

explained participants the instructions for both games and gave them the instructions in

writing and both in English and Turkish which can be found as follows (please see Appendix):

“Welcome and thank you for participating in this experimental session. By

following these instructions, you will earn an amount in Euros that will be paid in

cash at the end of the session.

Your earnings will be based entirely on your decisions and decisions of other

participants will affect your earnings.


37

Decisions and earnings of each participant will remain anonymous throughout

the experiment. This means that no one will receive information on other

participants’ choices and earnings.

Please turn off your cell phones and do not talk or in any way communicate with

other participants.

If you have any question or problem at any point in this experiment, please raise

your hand and one of the assistants will answer you.

The following rules are the same for all participants.

The answers of this survey will be kept in supreme confidentiality and will be used

for only academic purposes. This survey consists of three main sections namely

individual, organizational and internationalization aspects. If requested, the

results of this study may be shared with the participants. It is estimated that the

survey will not take more than one hour. We truly appreciate your time and

participation in this study.”

We expect to see the evidence for the hypotheses that are put forward by Georgantzis et al.

(2012) after statistical analysis has been applied to the answers the respondents have given in

the experiment.

3.2.5.1. Design of Two-Stage Oligopoly Game Under Ambiguity

This game replicates the one designed by Georgantzis et al. (2012). The basic design principle

of this game is that in a two-stage oligopoly market where there is demand uncertainty and

asymmetric information, two players, foreign and local, are asked to specify moves under

different conditions. First, the foreign firm decides the mode of entry which is either

exporting or foreign direct investment to serve the market. After that, it decides the quantities

that will be produced to compete with the local player who has information advantage about

the market. If only foreign market decides to enter the market with a foreign direct investment,

it can become informed as the local firm is. Thus, foreign firm will see uncertainty is resolved,

meaning it finds out whether the market is in the good state or bad state of demand. However,

becoming informed for an uninformed player is subjected to a certain amount of cost which

players will decide whether to bear it both in low amount of cost and high amount of cost.


38

Four subjects who had almost no theoretical economics knowledge participated to this game

that took place in 2 different sessions. Each participant made an independent observation for

each scenario where they also made decision. For these reasons, participants were given

specific description verbally and written about several concepts and theories for them to make

healthy observations and decisions in the scenarios they face (please see Appendix). This part

of the experiment conduct also differs from what Georgantzis et al. (2012) does. Hence, in

Georgantzis’s experiment subjects were undergraduate students in Economics major whereas

our sample group had almost no knowledge about theoretical economics whatsoever. We,

thus, spared some time to explain “strategic dominance”, “prisoners’ dilemma” and

“cooperation theory” until they understand these concepts fully. Explanations we basically did

as follows:

“Strategic Dominance: In game theory, strategic dominance occurs when one

strategy is better than another strategy for one player, no matter how that player's

opponents may play. For example, if B dominates A, this means choosing B

always gives a better outcome than choosing A, no matter what the other player(s)

do.

If both players have a strictly dominant strategy, players logically will play that

strategy in each game. However, this is not necessarily Pareto optimal, meaning

that there may be some outcomes of the game that would be better for both

players. The classic game used to illustrate this is the Prisoner's Dilemma.

Prisoners’ Dilemma: If we consider such a game that players are prisoners and

they will decide to stay silent about their crime, or to betray the other prisoner. If

prisoner A betrays and prisoner B remains silent, prisoner A will go free and B

will serve 3 years and vice versa. If they both betray, they will each serve for 2

years and if they both remain silent, they will serve just 1 year. In this case,

although their dominant strategy is to betray, they will get a better result if they

cooperate and remain silent.

Cooperation Theory: In some cases, players in a market may take decisions

cooperatively regarding the output number to meet the market demand rather

than in a competitive way. The reason is that each player knows that in some

cases, cooperation with the other actor/s brings higher return than in competition.

Our game in this experiment is an illustration to this phenomenon. For example,

https://en.wikipedia.org/wiki/Game_theory

https://en.wikipedia.org/wiki/Strategy_(game_theory)

https://en.wikipedia.org/wiki/Pareto_optimal

https://en.wikipedia.org/wiki/Prisoner%27s_Dilemma


39

both players know that playing strategy A together brings higher return to both of

them than playing their dominant strategy B, if they are aware that they compete

in the good state of demand (Game R). However, this outcome depends on

whether or not the foreign firm is aware of the demand state i.e. whether or not

the foreign firm has paid the cost G of becoming informed. It can be assumed that

the foreign firm is more likely to play cooperatively if he has paid the value of

low-G to become informed. What’s more, this firm is even more likely to play

cooperatively if he has paid the value of high-G. Therefore, local firm will take

this into consideration and he will also tend to play more cooperatively against

that kind of a foreign firm. Yet, this is not the case all the time. Sometimes, the

foreign player may play in a competitive way resulting in the local player gaining

less return while she is receiving more (Game R) simply because the foreign

player seeks out more return or does not want to cooperate with the rival. The

determining factor here can be given as risk level of the foreign player. The

opposite of this case, meaning local does not seek out cooperation, may as well

occur and the reasons are the same.”

GAME L

Foreign/Local A B

A (11 , 11) (9 , 10)

B (10 , 9) (8 , 8)

Table 4 - Payoff Matrix of Game L, Bad State of the Demand (Georgantzis et al., 2012)

GAME R

Foreign/Local A B

A (18 , 18) (15 , 19)

B (19 , 15) (16 , 16)

Table 5 - Payoff Matrix of Game R, Good State of the Demand (Georgantzis et al., 2012)


40

Table 4 above demonstrates the payoff matrix of Game L, meaning that the game is played

under the bad state of demand. Then, Table 5 above demonstrates the payoff matrix of Game

R, meaning that the game is played under the good state of demand. As can be seen, for an

informed player, A is the dominant strategy in the bad state of demand, Game L, and B is the

dominant strategy in the good state of demand, Game R.

Benefiting from the model that is put forward by Georgantzis et al. (2012), inverse demand

function in a homogeneous goods industry is as follows,

where is the stochastic price, and is the total output. The inverse demand intercept, ,

represents the characteristics of the local economy which can be either bad state (Game L) of

good state (Game R) of demand. The random variable is distributed as follows:

where and thus is called the good state and is the bad state. Theoretical model

suggests that stochastic price positively correlated with economy characteristics while it is

negatively correlated with total output.

As a matter of fact, strategy A corresponds to a low output and strategy B to high one in the

simplification of the quantity-setting game. It can be observed that Nash equilibrium is Pareto

dominant in the bad state of the demand while players do not cooperate in the good state of

demand, yielding a prisoners’ dilemma.

The game stipulates that foreign firm must submit a single strategy if they choose to remain

uninformed. In case they are willing to pay a fixed amount, €G they become informed,

resolving uncertainty about market condition. This fixed amount is FDI-related cost. They can

thus play two different strategies for each state of the demand. There are two different

treatments players face in this game, one with a low (€2.5) and another with a high (€5) value

of G. Georgantzis et al. (2012) suggests that risk neutral subjects should always choose to pay

low-G cost to become informed while in the high-G treatment, they choose to remain

uninformed, avoiding to pay the FDI-related fixed cost.

Each participant submitted a strategy both as a local and as a foreign firm as the subjects did

in the experiment conducted by Georgantzis et al. (2012). Participants submitted two different


41

strategies for each state of the demand (Game L and Game R) in the scenario where they were

playing as local, considering the foreign rival’s information state (informed/uninformed). In

the scenario where participants were playing as foreign, they submitted a single strategy for

both bad and good states of the demand unless they chose to become informed. Alternatively,

participants who were playing as foreign decided whether to pay fixed FDI-related cost G to

become informed or not to pay the cost and selected exporting as an entry mode to market

(which means staying uninformed in our game).

Instructions for this game were also available in the instructions papers which were given to

participants in the beginning of the experiment (please see Appendix). Game was explained

verbally and in writing as follows:

“You will have to submit your strategies, A or B, in the following situation: Two

players an informed (I) and an initially un-informed (U) one, play one of the two

games, Left (L) and Right (R) whose payoffs are defined as in the table below

(payoffs in Euros). The game is played by I-U pairs. If you are an I-type player

(given that you know which game you are playing when submitting your strategy)

you can submit two (potentially different) strategies, one for each game. If you are

a U-type player (given that you do not know which game you will be actually

playing at the moment of submitting your strategy) you are obliged to submit one

strategy for both games. U players may become informed by paying an amount X,

which may take two values, X = 2.5 € and X = 5.0 €. This means that if you decide

to become informed you can submit different strategies for different games. The

initially informed player (I) will know whether you became informed or not.

Before you know which type of player you are (I or U), and, if you are I, which

game you play, and, if you are U-type, the actual value of X, you will have to

submit your strategy for each condition and role.

Once we collect your strategies under all possible scenarios, a random process

will determine your role and you will be matched with a player (whose identity

will not be revealed to you) of the other type. A random process will also

determine the actual game and the scenario regarding the value of X. Your

decisions and those of the other player under these conditions will be used to

determine your final reward. Use the following page to submit your strategies.


42

When you finish, you will be informed on the actual scenario and your reward in

the experiments.”

With the aim of making the game structure more clear for participants, we prepared an

example answer to one of the scenarios that a participant would face. We explained the

example answer verbally and written down to instructions paper that we gave each participant

in the beginning of our experiment (please see Appendix). The example was given as follows:

“Playing the game under the scenario of X=€5.0, being an initially uninformed

foreign player against an informed local player I choose to be informed. I play

strategy A in the game L and strategy B in the game R.”

After each scenario was played by participants, and submitted online, calculation of prize

money was done and distributed to the participants. Then the experiment ended.

3.2.5.2. Design of Risk Aversion Game Experiment

In the paper of Georgantzis et al. (2012), two risk-elicitation tasks are implemented to the

subjects namely the one introduced in Holt and Laury (2002) and the other in Sabater-Grande

and Gerogantzis (2002). First one is generally used to categorize the subjects based on risk

attraction or risk aversion consequently whereas the second is designed to measure the risk

aversion degree of participants without considering risk attraction and risk neutral behavior.

However, we implemented the risk-elicitation method that is proposed by Holt and Laury

(2002) in our experiment since we had a small number of participant sample.

Different from the Holt and Laury experiment, we designed our payoff table based on 19

choices between paired lotteries (please see Table 6). As can be seen, payoffs for Lottery A,

€12 and €10, are closer than the payoffs for Lottery B, €22 and €0.50. Under these

circumstances, we identify Lottery A as the safe option while Lottery B as the risky option.

The probability of the high payoff for both lotteries is 1/20 in the first decision thus only an

extreme risk seeker would pick Lottery B. The probability of the high payoff outcome

increases decision by decision, moving down the table so that a person switches from lottery

A to lottery B at some step, depending on risk aversion/attraction degree. For instance, a risk

neutral participant would switch to Lottery B at tenth step whereas only an extreme risk

averse person would never switch to Lottery B.


43

LOTTERY A LOTTERY B

L1 If the drawn ticket is no.1, you win €12; otherwise,

if the drawn ticket is between 2 and 20, you win

€10

If the drawn ticket is no.1, you win €22; otherwise,

if the drawn ticket is between 2 and 20, you win

0.50€

L2 If the drawn ticket is between 1 and 2, you win

€12; otherwise, if the drawn ticket is between 3 and

20, you win €10

If the drawn ticket is between 1 and 2, you win €22;

otherwise, if the drawn ticket is between 3 and 20,

you win €0.50



20, you win €10



you win €0.50



20, you win €10



you win €0.50



20, you win €10



you win €0.50



20, you win €10



you win €0.50



20, you win €10



you win €0.50



20, you win €10



you win €0.50


€12; otherwise, if the drawn ticket is between 10

and 20, you win €10



you win €0.50




If the drawn ticket is between 1 and 10, you win


and 20, you win €0.50


















































€12; otherwise, if the drawn ticket is no. 20, you

win €10


€22; otherwise, if the drawn ticket is no. 20, you

win €0.50

Table 6 - Risk Aversion Game Lottery Table, Holt and Laury (2002)


44

With the aim of emphasizing the varying payoff difference based on probability, expected

payoffs in each step per option can be shown in Table 7 below. For instance, the expected

payoff difference between lottery A and lottery B decreases starting from the first step with a

value of €8.53. This means that considering weighted probabilities given in the table,

expected payoff incentive to choose lottery A in the first step €8.53 whereas this incentive in

the last step is (minus) -€9.03. Thus, it is plausible to assume that when the interval of

expected payoff difference is positive, choosing lottery B over A implies risk loving decision

is made. Conversely, when the interval is positive, choosing lottery A over B implies risk

averse decision is made. Additionally, crossovers that are done when the interval is close to ”0”

imply risk-neutral behavior. However, this assumption should be proven by the calculation of

risk preference through utility function.

LOTTERY A LOTTERY B Expected

Payoff Difference (€)

1/20 of €12, 19/20 of €10 1/20 of €22, 19/20 of €0.50 8.53

2/20 of €12, 18/20 of €10 2/20 of €22, 18/20 of €0.50 7.55

3/20 of €12, 17/20 of €10 3/20 of €22, 17/20 of €0.50 6.58

4/20 of €12, 16/20 of €10 4/20 of €22, 16/20 of €0.50 5.60

5/20 of €12, 15/20 of €10 5/20 of €22, 15/20 of €0.50 4.63

6/20 of €12, 14/20 of €10 6/20 of €22, 14/20 of €0.50 3.65

7/20 of €12, 13/20 of €10 7/20 of €22, 13/20 of €0.50 2.68

8/20 of €12, 12/20 of €10 8/20 of €22, 12/20 of €0.50 1.70

9/20 of €12, 11/20 of €10 9/20 of €22, 11/20 of €0.50 0.73

10/20 of €12, 10/20 of €10 10/20 of €22, 10/20 of €0.50 -0.25

11/20 of €12, 9/20 of €10 11/20 of €22, 9/20 of €0.50 -1.23

12/20 of €12, 8/20 of €10 12/20 of €22, 8/20 of €0.50 -2.20

13/20 of €12, 7/20 of €10 13/20 of €22, 7/20 of €0.50 -3.18

14/20 of €12, 6/20 of €10 14/20 of €22, 6/20 of €0.50 -4.15

15/20 of €12, 5/20 of €10 15/20 of €22, 5/20 of €0.50 -5.13

16/20 of €12, 4/20 of €10 16/20 of €22, 4/20 of €0.50 -6.10

17/20 of €12, 3/20 of €10 17/20 of €22, 3/20 of €0.50 -7.08

18/20 of €12, 2/20 of €10 18/20 of €22, 2/20 of €0.50 -8.05

19/20 of €12, 1/20 of €10 19/20 of €22, 1/20 of €0.50 -9.03

Table 7 - Expected Payoff Difference Table


45

Due to its computational convenience and bid function linearity with uniformly distributed

private values, constant relative risk aversion is assumed in the literature regarding auctions.

The utility function is as follows:

with constant relative risk aversion for money and for . This implies risk preference

for , risk neutrality for , and risk aversion for . When , the natural

algorithm is used; divison by is necessary for increasing utility when .

Instructions for this game were also available in the instructions papers which were given to

participants in the beginning of experiment (please see Appendix). Game was explained

verbally and in writing as follows:

“The instructions of this experiment are simple. If you follow them carefully, at

the end of the session you may earn an amount of money.

In this experiment, our focus will be examining risk aversion degree of our

participants. For this purpose, now you will be asked to make a choice between

two strategies namely A and B. Strategy A will represent a safe option while

strategy B will represent a risky option. With the possibility, which are given in

the following table, you will get the high or low reward of your selected

option. We will ask for your selection between A and B for each 19 different

reward possibilities. Possibility of receiving the higher reward will gradually

increase by each step. For example, looking at the case L.10 with a possibility of

50%, you will receive the higher reward (€12) if you select option A. Similarly,

with a possibility of 50%, you will receive the higher reward (€22) if you choose

option B. Otherwise, you will be rewarded the lower option in both options with

the possibility of 50%.”

Having completed the two games, participants were asked to choose the game for the prize

money to be calculated. If they chose the oligopoly game, their answers in one scenario,

compared to another participant’s answers, and calculation was made accordingly.

Unfortunately, for the first participant, it was not possible to choose the oligopoly game, thus

he was rewarded based on the lottery in the risk aversion game. If the participant chose risk


46

aversion game, the payment was made according to the step participant picked. Lottery was

carried out using a special program on computer which replicated the same lottery principle.

As it is also discussed throughout the report, we expect to show evidence for the hypotheses

that are developed by Georgantzis et al. (2012) with the analysis of the same experiment

subjecting different type of sample.

Hypothesis 1 Local firms will play the dominant strategy in the market game

regardless of the foreign firms’ strategies.

Hypothesis 2 Informed foreign firms will play the dominant strategy in the

market game.

Hypothesis 3 For any risk attitude an increase in G (cost of having information

about the demand in the local market) implies less observed

information purchase.

Hypothesis 4 For any probability of the good state of demand foreign firms are

more likely to purchase information the more risk averse they are.

Table 8 - Hypotheses

4. RESULTS

Until this point in our thesis, we have explained how we proceed to our research after

presenting the previous literature research and studies. We clarified that which specific factors

we focus on our study and defined our methodology by explaining how we created our survey,

how we designed our experiment and we presented our hypotheses. We also indicated what

kind of managers and CEOs would be suitable to conduct our experiment and survey by

mentioning the reasons.

After conducting our experiment on our managers and ask them to fill our survey we had

some interesting results. In this part, the reader can find the detailed results of both our survey

and our experiment. Finally, we will discuss our findings and explain how they helped to

prove our hypotheses.


47

4.1. Results of Survey

In our sessions with our four selected managers, first we asked them to fill in our survey. In

this section, we will share the overall results for every question and try to relate them with our

experiment afterwards, if we see any correlation.

First of all, all our participants are male and Turkish citizens. Three of them are CEOs of their

companies while the remaining participant is also a top manager and he is fully responsible in

the decision-making processes of his company especially in its internationalization decisions.

Figure 4 below shows their age intervals:

Figure 4 - Age Interval Distribution of the Participants

All our managers have at least a Bachelor degree showing that we have an academically high

educated participant sample. The results are as following in Figure 5.

Figure 5 - Education Level Distribution of the Participants


48

We obtained a normal distributed data with a mean of 3 for the answer of our question “how

would you rank the trustworthiness of people when working with them?” The results are as

following in Figure 6.

All of our participant managers have a previous international experience in the means of both

All of our participant managers have a previous international experience in the means of both

work and studying experiences abroad. When we ask about the total duration spent abroad for

studying and working activities together, their answers come up as in Figure 7, and when we

ask in which countries they have been to during that time, answers of each participant are as

in Table 9.

Figure 7 - International Experience of the Participants in Years

Trustworthiness level

Figure 6 - Trustworthiness Level Distribution of Participants


49

Participant ID Countries

1 Germany, Italy, Canada

2 Germany, Italy, Switzerland

3 Belgium, United Kingdom, Iran

4 United States of America

Table 9 - International Experience of the Participants Based on Location

In terms of funds they have been using to finance their company since its foundation, we

obtain 3 different results as seen in Table 10 below.

Participant ID Funding Method

1 Own funds and assets

2 Angel Investors

3 External Funders and Investors

4 Own funds and assets

Table 10 - Company Funding Methods

4 different answers are collected for the question “How was your company formed?” and they

can be seen in Figure 8 below.

Goal-oriented Company

Figure 8 - Company Formations


50

Home country of all the companies that our participant managers direct is “Turkey”. Besides

that, one company has a second home country which is “Switzerland”

As our main aspect in our research is internationalization decision making processes, we ask

the managers the internationalization status of their company and the results are as following

in Figure 9.

Figure 9 - Internationalization Status of the Firms

In more detail, one of these three companies which are already operating internationally has

been serving its international markets for 5 years, while the other 2 companies have been

operating internationally for around 1 year.

Another important question in our survey is about the entry mode of the companies in their

international markets. Keeping in mind that we have 3 companies that are currently operating

internationally, the following results are obtained in Figure 10.

Figure 10 - Mode of Entry Choices of the Firms


51

The foreign markets that our companies operate in can be seen in Table 11 below.

Company ID Foreign Markets

1 Germany, UK, Israel, Thailand, USA, Latvia, Spain

2 Iran

3 Iran, Azerbaijan, Cyprus

Table 11 - International Markets Served

A brief summary of the operations of these 3 companies in their international markets can be

observed in Table 12 below.

Company

ID

Number of clients

served in the

foreign markets

Percentage of

revenues coming

from international

markets

Growth of international

investments

1 50 40% Sharp increase in the first

years, then became stable

2 60 100% Stable from the beginning

3 25 15% Continuously growing

Table 12 - Specific Information About International Operations of the Companies

The 4th

participant, who is the CEO of the company that is currently not operating

internationally, stated that he will prefer exporting as an entry mode in the foreign markets

and also indicated their target foreign markets as Russia, United Kingdom, France, Italy,

Germany and USA.

Some other commentary answers that we collected from our participants inform us about their

opinions, motivations, struggles etc. They can be seen in the following tables.


52

Participant

ID

What are the motivations for your company to

internationalize?

1 Increasing revenues, easiness and trust in realizing cash flows,

incentives for exporting, tax reductions

2 High potential of Iran market, low competition

3 Growth opportunities, currency advantages

4 Stable revenue due to payment prior to shipping, high prices in the

market abroad, brand and firm awareness

Table 13 - Company Motivations For Internationalization

Participant

ID

What were the barriers for your company in the

internationalization process?

1 Language barrier, some cases need instant decision making,

damages realized in transportation

2 Bureaucratic obstacles such as tax rules and regulations, a culture

distant from corporate rules, high level of bribery and fraudulence,

3 Struggles experienced in banking system in the foreign country,

inconsistent custom tax and duties

4 Language barrier, difficulties in logistics and shipment, cultural

differences

Table 14 - Barriers for Companies In the Internationalization Process


53

Participant

ID

Have you ever experienced unexpected benefits in this process?

If yes, can you specify them?

1 Rapid growth of business network, word of mouth marketing

2 Higher returns than expected

3 Rapid network growing realized, opportunities seen for new

products/solutions

4 Trustworthy consumers, higher prices in jewelry market due to

labor costs

Table 15 - Unexpected Benefits Experienced During Internationalization

Participant

ID

Have you ever experienced unexpected challenges in this

process? If yes, can you specify them?

1 Uncommon customer profiles, high quality expectations

2 Difficulties in bureaucratic procedures

3 None

4 Difficulties during exporting such as rules and regulations,

insurance costs of products to be shipped

Table 16 - Unexpected Challenges Experienced During Internationalization


54

Participant

ID

What are the market success criteria for your company when it

is decided to internationalize?

1 Turkish population living in that country helps customer network

to grow more, easiness in doing business

2 Being the first discount retailer chain in the country

3 Number of competitors in the target market, level of technology

solutions used in the business environment

4 Number of competitors

Table 17 - Market Success Criteria of Companies to Internationalize

Participant

ID

What are the competitive advantages of your company when it

is decided to internationalize?

1 High customization of products, low cost products with high

quality

2 Competitive low prices of products

3 New, high quality and high level of technology solutions offered,

competent and competitive solutions offered

4 Lower labor costs, location of Turkey in terms of logistics, lower

shipment weights

Table 18 - Competitive Advantages of Companies to Internationalize


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Participant

ID

Do you think the characteristics of your home country have any

impact on your internationalization decisions? If yes, can you

explain how?

1 Having sea ports makes transportation cheaper, high skills of food

industry in Turkey

2

Similar consumer habits and culture compared with Turkey, Turkish

is understood by most Iranians, trade agreement between Switzerland

and Iran

3

Domestic market and opportunities have shrinked in Turkey recently,

economic power of investors has decreased. This made the company

look for new foreign clients

4 Lower labor costs and location of Turkey are critical factors for fast

delivery, especially to Europe

Table 19 - Effects of Home Country Characteristics On Internationalization

All these data are collected in order to have a deeper understanding of the personal

characteristics, motivations and experiences of our participant managers. In the following

chapter, we will focus on their risk aversion.

4.2. Results of Risk Aversion Game

As it was mentioned before in our thesis, one of our main focus in this research is finding a

correlation between individuals’ risk aversion perceptions and their decisions in the

internationalization processes. Holt and Laury (2002) conducted a similar experiment phase

as explained in detail before and we followed a similar approach during our research too. In

order to obtain the risk aversion degrees of our participants, first we ask them in which

occasion they will stop choosing the safe lottery option (A) and play the risky option (B)

instead for the first time. According to their answer, we conducted the required analysis and

calculated their level of “r” (degree of risk aversion) and place them in a risk aversion


56

classification similar to Holt and Laury (2002). In Table 20 below, choices of our participants

and their corresponding risk aversion classes can be seen.

Participant

ID

The step a participant

chooses Lottery B over

Lottery A for the first time

Risk Aversion

Degree

Risk Aversion

Classification

1 L14 r>0.38 Risk Averse

2 L10 r<0.38 Risk Loving

3 L9 r<0.38 Risk Loving

4 L15 r>0.38 Risk Averse

Table 20 - Answers of Participants to Risk Aversion Game and Statistical Analysis Results

As it is clearly seen in Table 20, we have two managers who are risk averse, while the

remaining two managers have a risk loving attitude. After we declare the results of our next

experiment about oligopoly game, we will present some interesting comments on these

findings by relating these two separate experiments.

4.3. Results of Two-Stage Oligopoly Game Under Ambiguity

In this experiment, we followed a methodology which is very similar to Georgantzis et al.

(2002) as explained before in detail. The results coming from the answers of our participant

managers can be seen below in Table 21.


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Percentage of A

strategies under

each condition

Initially informed player

playing with

Informed (Uninformed) player

Finally Informed

foreign player

against informed

local player

Uninformed

foreign player

against

informed local

player

Treatments Game L Game R Game L Game R Both

Low G treatment

(100% buy info)

75% 50%

(100%) (25%) 100% 50% 25%

High G treatment

(50% buy info)

75% 25%

(100%) (0%) 100% 50% 50%

Table 21 - Distribution of Participants’ Answers for Each Scenario in the Two-Stage Oligopoly Game

In Table 21, the percentage of the participants who choose strategy A is indicated in 2 rows,

for the 2 different scenarios which are “under low G treatment” and “under high G treatment”.

To re-mention it again, a low G corresponds to paying an amount of €2.5 while a high G

corresponds to paying €5 in order to gain information to become informed as a foreign firm.

In the second column of the table, the choices of initially informed players, who are assumed

to be local firms in our model, are presented for both game L and game R, playing against an

informed rival (a foreign firm choosing to be informed, so adopting FDI). Results for the case

in which they are playing against an uninformed rival (a foreign firm not choosing to be

informed, so a foreign exporter) are shown in parentheses. Column three of the table

represents the choices of subjects who begin the game as an initially uninformed player but

purchase the information, thus become an informed player (a foreign firm adopting FDI in our

model) playing against a local rival. Lastly, the fourth column shows the choices of

uninformed foreign player who do not purchase information by paying G, thus continue

playing as an uninformed player (a foreign exporter in our model) against informed rivals.

After we examine this data of choices in the light of our research hypotheses, following

results can be inferred:


58

Result 1: As it was predicted before the experiment, dominant strategy of the Game L

(strategy A) is preferred strongly by initially informed players (local firms) and also by finally

informed ones (foreign firms adopting FDI). The support for strategy A in Game L (bad state

of the demand) is 100% in all the cases but in the case in which a local firm plays against a

finally informed foreign firm. The possible reason for this exception will be discussed later in

this study.

Result 2: Dominant strategy (strategy B) in Game R (good state of the demand) gets strong

support by initially informed players (local firms) playing against uninformed rivals (foreign

exporters) There is no player choosing strategy A in the high G treatment and there is only 25%

support in the low G treatment.

These results provide full support for H1.

Result 3: Finally, informed foreign players (foreign firms adopting FDI) always play their

dominant strategy (strategy A) in Game L. However, we cannot claim that they are doing so

in Game R since only 50% of them prefer to play the dominant strategy of Game R (strategy

B) in both treatments. Therefore, we cannot confirm H2. A broad discussion about the reasons

of not preferring the dominant strategy in Game R will be presented in the next chapters.

Result 4: All the participant managers choose to get informed, to use FDI in other words, in

the low G treatment. However, only 50% of them choose to do so in the high G treatment.

This result can qualitatively prove H3. The reason is that the number of participants who

want to get information purchase has decreased sharply when the price of G doubles. We will

also show the relationship between tendency to get information purchase and risk aversion of

managers in the next result. Though, at this point it can clearly be seen that H3 can be

confirmed for our sample even without looking at their risk aversion degrees.

Result 5: After observing that an higher amount of G makes the participant managers tend to

get less information purchase, we can examine this occasion in more detail by comparing the

risk attitudes of the participants. Below in Table 22, risk aversion degrees and information

purchasing decisions of our subjects in high G treatment can be seen:


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Participant

ID

Risk Aversion

Classification

Decision to purchase

information

1 Risk Averse Purchase

2 Risk Loving No Purchase

3 Risk Loving No Purchase

4 Risk Averse Purchase

Table 22 - Risk Aversion Degrees of Participants and Their Choices for Purchasing Information

By evaluating the results in Table 22, it can obviously be stated that foreign firms are more

likely to purchase information the more risk averse they are, which confirms H4.

Indeed, there are some exceptions in previous literature conflicting with this hypothesis. For

example, in the Sabater-Grande and Georgantzis (2002) risk elicitation task, subjects who

have not purchased information in the low-G treatment have exhibited a weakly (Mann-

Whitney, p=0.1) higher degree of risk aversion (Georgantzis et al. 2012).

In addition to these results which we used to confirm our hypotheses, some other

interpretations may be done in the light of the data we gain from this experiment. These

results are mostly related to behavioral issues.

Result 6: Unexpectedly, initially informed players (local firms) remarkably change their

attitude in choosing the dominant strategy depending on the treatments. It can be clearly

understood that they do so in order to play cooperatively against informed entrants (foreign

firms adopting FDI) in Game R (good state of the demand). Interesting finding is that they

change the frequency of this behavior depending on the value of G. Specifically, in Game R,

in the low-G treatment they leave playing the dominant strategy B, in favor of cooperative

market behavior, in twice as many cases as they do in the high-G treatment (50% vs. 25%).

However, we cannot see a significant difference in the preferences of finally informed players

in terms of cooperative play in the two different G treatments. In both treatments, in Game R

they abandon their dominant strategy 50% of the total cases in order to play cooperatively.


60

Result 6 imply an unexpected, although intuitively logical way of behavior. It can be

understood that foreign firms which pay the amount of G to purchase information and thus

have an FDI adoption target for higher earnings and this leads them to behave more

cooperatively in the foreign market than they would do otherwise. This is clearly shown by

their strategies.

On the other hand, it may be harder to understand the behavior of local firms which

significantly decrease their level of cooperative playing when G doubles. This may be

explained with the following phenomena. From Sabater-Grande and Georgantzís (2002), we

know that highly risk-averse subjects tend to behave less cooperatively in a prisoners’

dilemma (Georgantzis et al. 2012). This can be confirmed by our data, knowing that in high G

treatment our risk averse subjects choose to pay this high G amount to get information (to

adopt FDI) while risk loving subjects do not so. In our experiment, having a less cooperative

behavior in a prisoners’ dilemma corresponds to play strategy B in Game R. Therefore, local

firms seem to anticipate this behavior in their rivals’ strategy and most of the cases they

respond to this logically by playing strategy B in order to minimize the gaining of their rivals

while maximizing their own potential earnings.

Result 7: The behavior of initially uninformed players (foreign firms) who have decided to

remain uninformed (foreign exporters) significantly varies under different G treatments.

Specifically, a lower G (cost of adopting FDI) makes an exporting firm behave significantly

less cooperatively than under a higher one (25% vs 50%). This can be explained by a

psychological behavior point of view. Knowing that it is easier to pay a low amount of G in

order to get information than paying a higher one, naturally more people will select to pay G

in a low treatment scenario comparing to a high treatment scenario. Thus, it is reasonable to

claim that a person who do not pay a low G will also not pay a high G too. On the other hand,

there are possibly many people who are willing to play cooperatively and can afford to pay a

low G but not a high G. Therefore, considering that there are some people who remain

uninformed just because they could not afford a high G, it is not irrational to assume that they

will keep their cooperative behavior in both cases by playing strategy A against local firms.

However, it is very likely that if a firm chooses not to pay a low G, this is because they do not

want to play a cooperative strategy. By using this assumption, we can bring an explanation for

this different cooperative playing under two different G treatments.


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5. DISCUSSION AND REMARKS

After presenting the results of our conducted experiments and discussing how significant they

are for confirming our hypotheses, in this section we will present some extra comments and

discussion about our findings.

First of all, it is necessary to state that our experiments are very similar to those conducted in

Holt and Laury (2002) and Georgantzis et al. (2012) as mentioned before. This means that our

methodology is very similar to theirs. The main reason we want to conduct similar

experiments and test these hypotheses is that we wanted to see and test if they will also be

confirmed when applied to a sample of managers from a different cultural context. Although

our sample is very small comparing to the samples of Holt and Laury (2002) and Georgantzis

et al. (2012) we obtained some interesting differences.

Specifically, as we mentioned in the ‘Result 1’ of the oligopoly game experiment, support for

strategy A in Game L (bad state of the demand) is 100% in all of the cases except in the case

in which a local firm plays against a finally informed foreign firm. Although this does not

affect the correctness of H1, we find it essential to comment on the reason for such an

observation which is a little bit different than the findings of Georgantzis et al. (2012). Here

the critical issue is that Georgantzis et al. (2012) do not ask their experiment subjects about

the reasons of their preferred strategies but just ask them to indicate the strategies in each

specific scenario. This makes it harder to understand the underlying dynamics that are playing

some role in shaping the decision-making processes. After the results are obtained,

justifications are tried to be made by using some theoretical models but this may cause to

underestimate the effects of some extraordinary behavioral decisions of the managers. For that

purpose, in our own experiments we ask our participants about the reasons of their choices,

when we observed a slightly different result from one participant, even though this does not

change the overall results of the experiment.

When we ask our participant about the reason of his decision not to follow the dominant

strategy (strategy A) in the Game L (bad state of the demand) even though this is also a Pareto

optimal decision, he explained that his priority is to gain a reward which is absolutely greater

or equal to the reward of his opponent. Interestingly, although it is not a dominant strategy, by

choosing strategy B he guarantees his priority. In a possible scenario when he chooses

strategy A but his foreign informed rival chooses strategy B, this will cause him to gain a

reward which is less than his opponent’s. We think that this can be a good example for a


62

contradictory decision making and the reason of such decisions cannot be understood easily

sometimes without asking the decision maker about his decision-making process.

Another interesting outcome we observe in our results which is different than the results of

Georgantzis et al. (2012) is that the percentage of people who abandon their dominant strategy

in order to play cooperatively with their rival is quite higher in our experiment results than the

ones in Georgantzis et al. (2012). This even yields to a conflict in H2, which states that

“informed foreign firms will play the dominant strategy in the market game”. The percentage

of subjects who reject to play their dominant strategy in Game R is 50% and this is pretty

much higher than 20% and 12% obtained in Georgantzis et al. (2012) for low and high G

treatments respectively. Underlying reasons for this outcome can be discussed. Since the main

difference between these two experiments is that their sample of participants consists of

people coming from different countries and cultures. It may be claimed that in some cultures

people tend to behave more cooperatively while they tend to do so less in another culture.

6. CONCLUSION

Throughout our research for our thesis, we tried to understand the dynamics affecting the

decision-making progress of companies in their internationalization processes. CEOs and the

managers have the most critical position and effect in this manner. Their characteristics and

way of understanding and perceiving the risk, uncertainty and ambiguity in their business

environment have a vital importance which is directly affecting the future and the

internationalization progress of the companies operating all over the world.

After presenting an extensive literature review about the previous studies and experiments

conducted in different countries and in different circumstances and evaluating their key points

we developed our own methodology. First we presented a model of survey to be filled by

selected managers who have full responsibility in international decision making for their

companies founded in Turkey and we wanted to have a detailed information about their

personal characteristics, backgrounds and previous experiences. Moreover, we had the

possibility to have a deeper knowledge about their companies. Some critical information such

as the industry, products and services produced, internationalization progress of the firm,

motivations, advantages, challenges and expectations from the business operations are gained

by applying this survey.


63

Then, a two-step experimental design was developed to be conducted with our selected

participant managers. In the first step, an experiment aiming to measure the risk aversion

degrees of our subjects was prepared. This experiment has its origins from a similar one

presented in Holt and Laury (2002). Basically, the participants are asked to choose a point on

a scale where they will prefer a risky option instead of a safe option for the first time and this

is used to measure their risk aversion degree. Two of our subjects are placed in ‘risk averse’

category while the other two are placed in ‘risk lover’ category considering the results of this

experiment.

In the second step of this experimental session, we conducted an experiment on the same

subjects in order to understand their decision-making processes under “ambiguity and

uncertainty” and we tried to relate their decisions with their corresponding “risk aversion”

degrees. Another factor which is directly affecting the results is “cooperation theory”.

Therefore, we also wanted to test how the dynamics of cooperation theory will affect the

decisions of the subjects when they have a dominant strategy in a defined scenario. This

experiment has its roots from the research of Georgantzis et al. (2012) and our aim was to test

the similar hypothesis in a different cultural context.

According to our results the following hypotheses are confirmed:

H1: Local firms will play the dominant strategy in the market game regardless of the foreign

firms’ strategies.

H3: For any risk attitude, an increase in G implies less observed information purchase.

H4: For any probability of the good state of demand foreign firms are more likely to purchase

information the more risk averse they are.

On the other hand, H2, stating that “informed foreign firms will play the dominant strategy in

the market game.” could not be significantly confirmed.

After obtaining the results it can be confirmed that there is a strong correlation between risk

aversion and tendency to avoid ambiguity when having to decide in uncertain circumstances.

Therefore, it can be claimed that risk aversion and ambiguity aversion degrees of decision

makers have a vital effect on the future plans, operations and decisions of international

companies.


64

It is also crucial to state that the implementation of these experimental studies may not give

the same results in every context. First of all, our sample is relatively smaller than those we

tried to re-model. Second, we certainly believe that the cultural background of participants

also directly affect their way of thinking and thus their decision-making methods. For

example, cooperation can have a significant importance and moral value in a culture while

individualism can be much more important than that in another culture. As it is seen in our

results, this can even change the correctness of some hypotheses.

Finally, further questions can be asked to participants in order to examine the other factors

that may underlie in their decision-making processes. These factors that are currently not

involving in theoretical models should be examined in other studies in order to extend the

framework. It is obvious that this may be possible by collaboration of various disciplines such

as industrial economics, psychology, statistics and business management.


65

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APPENDIX

Survey – English Version

Title: A BEHAVIORAL STUDY ON CHARACTERISTICS OF MANAGERS IN THE

PROCESS OF INTERNATIONALIZATION

Instructions:

This study is designed by two Master Degree students in Management Engineering

department of Politecnico di Milano. The aim of the study is to understand the underlying

effects of behavioral characteristics of founders and/or managers who have the full

responsibility in decision making processes of their companies. Specifically,

internationalization of firms will be our main focus. The answers of this survey will be kept in

supreme confidentiality and will be used for only academic purposes. This survey consists of

three main sections namely individual, organizational and internationalization aspects. If

requested, the results of this study may be shared with the participants. It is estimated that the

survey will not take more than one hour. We truly appreciate your time and participation in

this study.

Questions

Individual Aspects

1. Please indicate your ID

2. Gender

o Male

o Female

3. Age

4. Marital Status

o Married

o Single

5. Nationality

6. Educational Level

o Primary Education

o Secondary Education


70

o Bachelor Degree

o Master Degree

o Doctoral Degree

7. What is your role in the company? (If you are not a founder of the company please

specify your tasks or division, e.g. HR, Finance etc.)

o Founder

o Other

8. Generally speaking, in a scale, how would you rank the trustworthiness of people

when working with them? (Not trustworthy at all; 1-5; Extremely trustworthy)

o 1

o 2

o 3

o 4

o 5

9. Do you have any kind of experience abroad?

o Yes

o No

10. Can you classify the type of experience/s?

o Study

o Work

o Other

11. In which country/s were you present during your experience/s?

12. How long was your total experience?

o 0-1 year

o 1-2 years

o More than 2 years

Organizational Aspects

13. What is the name of your company?

14. What is the primary industry of your company?


71

15. What are the services/products you offer to the market?

16. Can you specify your target customer profile? (E.g. People aged between 18-25 who

are following new trends in social media)

17. How has your business been funded since its foundation?

o Crowdfunding

o Angel Investors

o Bank Loans

o Other

18. How was your company formed?

o Spin-off

o Joint Venture

o Start up

o Other

19. What is the home country of your company?

20. How many personnel are currently employed by your company? (Local and

Worldwide)

21. What kind of organizational structure do you have?

22. What is the annual turnover of your company?

23. How many clients are you currently serving?

24. For how long are you in the business?

25. How many founders are there in the company?

26. How many professionals are in charge of decision making in shaping business

strategies?

27. How many clients are you serving in international markets?

Internationalization Aspects

28. Can you specify the internationalization status of your company?

o Our firm is already operating internationally

o We have taken some steps but we are not operating yet

o We intend to internationalize in the near future


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Internationalization Aspects-1

29. Since when has your company been operating internationally?

30. Can you specify the mode of entry?

o Exporting

o Franchising

o Foreign Direct Investment

o Joint Venture

o Licensing

o Other

31. Which market/s are you operating in?

32. How many clients are you serving in international markets?

33. What percentage of your revenues come from international markets?

34. Have you experienced a continuous growth in your investments or was there any point

that you had to stop or diminish them?


35. Which mode of entry would you choose?

o Exporting

o Franchising

o Foreign Direct Investment

o Joint Venture

o Licensing

o Other

36. Which markets would you operate in?


37. What are/were the motivations for your company to internationalize?

38. What are/were the barriers for your company in the internationalization process?

39. Have you ever experienced unexpected benefits/challenges in this process? If yes, can

you specify them?


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40. What are the market success criteria/competitive advantages for your company when it

is decided to internationalize? (e.g. Easiness of doing business, Income level of the

country, Labor costs, Skill of employees etc.)

41. Do you think the characteristics of your home country have any impact on your

internationalization decisions? If yes, can you explain how?


74

Instructions Paper

Welcome!

Welcome and thank you for participating in this experimental session. By following these

instructions, you will earn an amount in EUROS that will be paid in cash at the end of the

session.

Your earnings will be based entirely on your decisions: decisions of other participants will

affect your earnings.

Decisions and earnings of each participant will remain anonymous throughout the experiment.

This means that no one will receive information on other participants’ choices and earnings.

Please turn off your cell phones and do not talk or in any way communicate with other

participants.

If you have any question or problem at any point in this experiment, please raise your hand

and one of the assistants will answer you.

The following rules are the same for all participants.

The answers of this survey will be kept in supreme confidentiality and will be used for only

academic purposes. This survey consists of three main sections namely individual,

organizational and internationalization aspects. If requested, the results of this study may be

shared with the participants. It is estimated that the survey will not take more than one hour.

We truly appreciate your time and participation in this study.

GAME A

You will have to submit your strategies, A or B, in the following situation: Two players an

informed (I) and an initially un-informed (U) one, play one of the two games, Left (L) and

Right (R) whose payoffs are defined as in the table below (payoffs in Euros). The game is

played by I-U pairs. If you are an I-type player (given that you know which game you are

playing when submitting your strategy) you can submit two (potentially different) strategies,

one for each game. If you are a U-type player (given that you do not know which game you

will be actually playing at the moment of submitting your strategy) you are obliged to submit


75

one strategy for both games. U players may become informed by paying an amount X, which

may take two values, X = 2.5 € and X = 5.0 €. This means that if you decide to become

informed you can submit different strategies for different games. The initially informed player

(I) will know whether you became informed or not. Before you know which type of player

you are (I or U), and, if you are I, which game you play, and, if you are U-type, the actual

value of X, you will have to submit your strategy for each condition and role.

Once we collect your strategies under all possible scenarios, a random process will determine

your role and you will be matched with a player (whose identity will not be revealed to you)

of the other type. A random process will also determine the actual game and the scenario

regarding the value of X. Your decisions and those of the other player under these conditions

will be used to determine your final reward. Use the following page to submit your strategies.

When you finish, you will be informed on the actual scenario and your reward in the

experiments.

Payoff matrices for the two games potentially played by the subjects depending on the bad

(L) or the good (R) state of the demand:

Game L

Foreign/Local A B

A (11,11) (9,10)

B (10,9) (8,8)

Game R

Foreign/Local A B

A (18,18) (15,19)

B (19,15) (16,16)


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Example Answer:

Playing the game under the scenario of X=€5.0, being an initially uninformed foreign player

against an informed local player I choose to be informed. I play strategy A in the game L

and strategy B in the game R.

Additional Information

Strategic Dominance: In game theory, strategic dominance occurs when one strategy is

better than another strategy for one player, no matter how that player's opponents may play.

For example, if B dominates A, this means choosing B always gives a better outcome than

choosing A, no matter what the other player(s) do.

If both players have a strictly dominant strategy, players logically will play that strategy in

each game. However, this is not necessarily Pareto optimal, meaning that there may be some

outcomes of the game that would be better for both players. The classic game used to

illustrate this is the Prisoner's Dilemma.

Prisoner’s Dilemma: If we consider such a game that players are prisoners and they will

decide to stay silent about their crime, or to betray the other prisoner. If prisoner A betrays

and prisoner B remains silent, prisoner A will go free and B will serve 3 years and vice versa.

If they both betray, they will each serve for 2 years and if they both remain silent, they will

serve just 1 year. In this case, although their dominant strategy is to betray, they will get a

better result if they cooperate and remain silent.

Cooperation Theory: In some cases, players in a market may take decisions cooperatively

regarding the output number to meet the market demand rather than in a competitive way. The

reason is that each player knows that in some cases, cooperation with the other actor/s brings

higher return than in competition. Our game in this experiment is an illustration to this

phenomenon. For example, both players know that playing strategy A together brings higher

return to both of them than playing their dominant strategy B, if they are aware that they

compete in the good state of demand (Game R). However, this outcome depends on whether

or not the foreign firm is aware of the demand state i.e. whether or not the foreign firm has

paid the cost G of becoming informed. It can be assumed that the foreign firm is more likely

to play cooperatively if he has paid the value of low-G to become informed. What’s more, this

https://en.wikipedia.org/wiki/Game_theory

https://en.wikipedia.org/wiki/Strategy_(game_theory)

https://en.wikipedia.org/wiki/Pareto_optimal

https://en.wikipedia.org/wiki/Prisoner%27s_Dilemma


77

firm is even more likely to play cooperatively if he has paid the value of high-G. Therefore,

local firm will take this into consideration and he will also tend to play more cooperatively

against that kind of a foreign firm. Yet, this is not the case all the time. Sometimes, the

foreign player may play in a competitive way resulting in the local player gaining less return

while she is receiving more (Game R) simply because the foreign player seeks out more

return or does not want to cooperate with the rival. The determining factor here can be given

as risk level of the foreign player. The opposite of this case, meaning local does not seek out

cooperation, may as well occur and the reasons are the same.

An Experiment of Two-Stage Oligopoly Game Under Ambiguity


Experiment Phase

Answer the questions considering that you are playing as an informed player against an

initially uninformed player

2. In X=2.5 € scenario, if you play against someone who chose to remain uninformed,

what would be your strategies? (Please choose one strategy for each game)

o In game L, I would play A

o In game L, I would play B

o In game R, I would play A

o In game R, I would play B

3. In X=5.0 € scenario, if you play against someone who chose to remain uninformed,







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4. In X=2.5 € scenario, if you play against someone who chose to become informed,






5. In X=5.0 € scenario, if you play against someone who chose to become informed,

what would be your strategies?





Answer the questions considering that you are playing as an initially uninformed player

against an informed player

6. Would you choose to become informed with a price of X= €2.5 ?

o Yes, I would want to become informed

o No, I would want to remain uninformed

Answer the questions considering that you are playing against an informed player

7. Which strategies would you choose in this case? (Please choose one strategy for each

game)







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8. Which strategy would you choose in this case? (Please choose your strategy

considering that you are uninformed about the game you are playing. This means you

have the possibility to submit only one strategy.)

o In both games, I would play A

o In both games, I would play B

Answer the questions considering that you are playing as an initially uninformed player

against an informed player

9. Would you choose to become informed with a price of X= €5.0 ?

o Yes, I would want to become informed

o No, I would want to remain uninformed


10. Which strategies would you choose in this case? (Please choose one strategy for each

game)






11. Which strategy would you choose in this case? (Please choose your strategy

considering that you are uninformed about the game you are playing. This means you

have the possibility to submit only one strategy.)

o In both games, I would play A

o In both games, I would play B


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GAME B

The instructions of this experiment are simple. If you follow them carefully, at the end of the

session you may earn an amount of money.

In this experiment, our focus will be examining risk aversion degree of our participants. For

this purpose, now you will be asked to make a choice between two strategies namely A and B.

Strategy A will represent a safe option while strategy B will represent a risky option. With the

possibility, which are given in the following table, you will get the high or low reward of your

selected option. We will ask for your selection between A and B for each 19 different reward

possibilities. Possibility of receiving the higher reward will gradually increase by each step.

For example, looking at the case L.10 with a possibility of 50%, you will receive the higher

reward (12 €) if you select option A. Similarly, with a possibility of 50%, you will receive the

higher reward (22 €) if you choose option B. Otherwise, you will be rewarded the lower

option in both options with the possibility of 50%.

Please do not hesitate to ask any question if the instructions are not clear.

Thank you for your participation.


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Survey – English&Turkish Version

Title: A BEHAVIORAL STUDY ON CHARACTERISTICS OF MANAGERS IN THE

PROCESS OF INTERNATIONALIZATION (ULUSLARARASILAŞMA SÜRECİNDE

YÖNETİCİLERİN KARAKTER ÖZELLİKLERİ ÜZERİNE BİR DAVRANIŞSAL ANALİZ

ÇALIŞMASI)

Instructions:

This study is designed by two Master Degree students in Management Engineering

department of Politecnico di Milano. The aim of the study is to understand the underlying

effects of behavioral characteristics of founders and/or managers who have the full

responsibility in decision making processes of their companies. Specifically,

internationalization of firms will be our main focus. The answers of this survey will be kept in

supreme confidentiality and will be used for only academic purposes. This survey consists of

three main sections namely individual, organizational and internationalization aspects. If

requested, the results of this study may be shared with the participants. It is estimated that the

survey will not take more than one hour. We truly appreciate your time and participation in

this study.

Bu çalışma Politecnico di Milano üniversitesinde İşletme Mühendisliği alanında yüksek lisans

yapmakta olan iki öğrenci tarafından tasarlanmıştır. Çalışmamızın amacı, bulundukları

şirkette kurucu ya da üst düzey yönetici olarak karar verme mekanizmasında tam yetki sahibi

olan kişilerin davranışsal karakter özelliklerinin verdikleri iş kararları üzerindeki etkilerini

araştırmaktır. Şirketlerin uluslararası faaliyet planları ve kararları ise çalışmamızın odak

noktasını oluşturmaktadır. Bu ankette vereceğiniz bütün cevaplar gizli tutulacak ve

çalışmamızın amacı dışında kesinlikle kullanılmayacak ve paylaşılmayacaktır. Anket üç ana

bölümden oluşmakta olup sırasıyla bireysel, organizasyonel ve uluslararası faaliyetlerle ilgili

sorulara cevap vermeniz istenecektir. İstenildiği takdirde çalışmamızın sonuçları bireysel

olarak katılımcılarımızla paylaşılacaktır. Anketimizi tamamlamak tahmini olarak en çok bir

saatinizi alacaktır. Zamanınızı ayırdığınız ve çalışmamıza katıldığınız için teşekkür ederiz.


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Questions

Individual Aspects (Bireysel Özellikler)


14. Gender (Cinsiyet)

o Male (Erkek)

o Female (Kadın)

15. Age (Yaş)

16. Marital Status (Medeni Durum)

o Married (Evli)

o Single (Bekar)

17. Nationality (Uyruk)

18. Educational Level (Eğitim Seviyesi)

o Primary Education (İlköğretim)

o Secondary Education (Lise)

o Bachelor Degree (Lisans mezunu)

o Master Degree (Yüksek lisans mezunu)

o Doctoral Degree (Doktora mezunu)

19. What is your role in the company? (If you are not a founder of the company please

specify your tasks or division, e.g. HR, Finance etc.) (Şirketin kurucusu değilseniz

lütfen çalıştığınız birimi veya görevinizi yazınız, örn. İK, Finans vb.)

o Founder (Kurucu)

o Other (Diğer)

20. Generally speaking, in a scale, how would you rank the trustworthiness of people

when working with them? (Not trustworthy at all; 1-5; Extremely trustworthy)

(Beraber çalıştığınız insanların güvenilirliklerine ölçek üzerinde bir puan verecek

olsaydınız kaç puan verirdiniz?) (Kesinlikle güvenilir; 1-5; Son derece güvenilmez)

o 1

o 2

o 3

o 4


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o 5

21. Do you have any kind of experience abroad? (Herhangi bir yurtdışı deneyiminiz oldu

mu?)

o Yes (Evet)

o No (Hayır)

22. Can you classify the type of experience/s? (Deneyim(ler)inizi belirtiniz)

o Study (Eğitim)

o Work (İş)

o Other (Diğer)

23. In which country/s were you present during your experience/s? (Deneyim(ler)iniz

hangi ülke(ler)de gerçekleşti?)

24. How long was your total experience? (Toplam olarak kaç yıllık bir deneyiminiz oldu?)

o 0-1 year (0-1 yıl)

o 1-2 years (1-2 yıl)

o More than 2 years (2 yıldan fazla)

Organizational Aspects (Organizasyonel Özellikler)

28. What is the name of your company? (Şirketinizin adı nedir?)

29. What is the primary industry of your company? (Şirketinizin ana sektörü nedir?)

30. What are the services/products you offer to the market? (Pazara sunduğunuz ürün veya

hizmetler nelerdir?)

31. Can you specify your target customer profile? (E.g. People aged between 18-25 who

are following new trends in social media) (Hedef müşteri profilinizi belirtiniz) (Örn.

18-25 yaş arasında sosyal medyadaki yeni trendleri takip eden gençler)

32. How has your business been funded since its foundation? (Şirketiniz kuruluşundan

itibaren mali kaynağını nasıl sağladı?)

o Crowdfunding (Kitlesel fonlama)

o Angel Investors (Melek yatırımcılar)

o Bank Loans (Banka kredileri)

o Other (Diğer)

33. How was your company formed? (Şirketinizin ortaya çıkış şekli nasıl oldu?)

o Spin-off

o Joint Venture


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o Start up

o Family Owned Business (Aile Şirketi)

o Other (Diğer)

34. What is the home country of your company? (Şirketiniz hangi ülke kaynaklıdır?)

35. How many personnel are currently employed by your company? (Local and

Worldwide) (Şirketinizde toplam kaç kişi çalışmaktadır? Yurt içi ve dışında)

36. What kind of organizational structure do you have? (Organizasyon şemanızı

açıklayabilir misiniz?)

37. What is the annual turnover of your company? (Şirketinizin yıllık cirosu ne kadardır?)

38. How many clients are you currently serving? (Şu anda kaç müşteriye hizmet

vermektesiniz?)

39. For how long are you in the business? (Ne kadar süredir şirketiniz piyasanın içinde yer

almakta?)

40. How many founders are there in the company? (Şirketinizin kaç kurucusu vardır?)

41. How many professionals are in charge of decision making in shaping business

strategies? İş stratejileri ile ilgili karar verme sürecinde kaç kişi doğrudan yetkilidir?)

Internationalization Aspects (Uluslararası Özellikler)

42. Can you specify the internationalization status of your company? (Şirketinizin

uluslararasılaşma durumunu belirtiniz)

o Our firm is already operating internationally (Şirketimiz halihazırda

uluslararası düzeyde faaliyet göstermektedir)

o We have taken some steps but we are not operating yet (Uluslararası düzeyde

faaliyete geçmek için bazı adımları attık ancak henüz faaliyete başlamadık)

o We intend to internationalize in the near future (Yakın gelecekte uluslararası

düzeyde faaliyete geçmek düşüncesindeyiz)

Internationalization Aspects-1 (Uluslararası Özellikler-1)

43. Since when has your company been operating internationally? (Şirketiniz ne

zamandan beri uluslararası düzeyde hizmet vermektedir?)

44. Can you specify the mode of entry? (Uluslararası operasyonlarınızı hangi modelde

yürütmektesiniz?)


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o Exporting (İhracat)

o Franchising (Bayilik verme)

o Foreign Direct Investment (Doğrudan yabancı yatırım)

o Joint Venture (Ortak girişim)

o Licensing (Lisans anlaşması)

o Other (Diğer)

45. Which market/s are you operating in? (Hangi ülke pazarlarında faaliyet

göstermektesiniz?)

46. How many clients are you serving in international markets? (Uluslararası pazarlarda

toplam kaç müşteriye hizmet vermektesiniz?)

47. What percentage of your revenues come from international markets? (Gelirlerinizin

yüzde kaçı uluslararası pazarlardaki faaliyetlerinizden sağlanmaktadır?)

48. Have you experienced a continuous growth in your investments or was there any point

that you had to stop or diminish them? (Yatırımlarınız sürekli olarak artış mı gösterdi

yoksa yatırımlarınızı azaltmak ya da durdurmak durumunda kaldığınız bir durum

yaşandı mı?)


37. Which mode of entry would you choose? (Uluslararası operasyonlarınız için hangi

modeli uygun görüyorsunuz?)

o Exporting (İhracat)

o Franchising (Bayilik verme)

o Foreign Direct Investment (Doğrudan yabancı yatırım)

o Joint Venture (Ortak girişim)

o Licensing (Lisans anlaşması)

o Other (Diğer)

38. Which markets would you operate in? (Hangi ülke pazarlarında faaliyet gösterme

niyetindesiniz?)


42. What are/were the motivations for your company to internationalize? (Şirketinizi

uluslararası boyuta taşımanız için motivasyon kaynaklarınız nelerdir?)


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43. What are/were the barriers for your company in the internationalization process?

(Uluslararasılaşma sürecinde ne gibi zorluklarla karşılaştınız?)

44. Have you ever experienced unexpected benefits/challenges in this process? If yes, can

you specify them? (Bu süreçte herhangi beklemediğiniz bir kazanım ya da zorlukla

karşılaştınız mı? Karşılaştıysanız bunları belirtebilir misiniz?)

45. What are the market success criteria/competitive advantages for your company when it

is decided to internationalize? (e.g. Easiness of doing business, Income level of the

country, Labor costs, Skill of employees etc.) (Uluslararasılaşma sürecinde girdiğiniz

ya da girmeyi düşündüğünüz pazarlarda başarı kriterleriniz ve şirketinizi öne

çıkaracak rekabetsel avantajlarınız nelerdir?) (Örn. ticari kolaylıklar, ülkenin gelir

düzeyi, işçi maaliyetleri, çalışanların nitelikleri vb.)

46. Do you think the characteristics of your home country have any impact on your

internationalization decisions? If yes, can you explain how? (Uluslararasılaşma

kararlarınızda şirketinizin ana ülkesinin sahip olduğu özelliklerin bir etkisi olduğunu

düşünüyor musunuz, düşünüyorsanız açıklayabilir misiniz?)


87

Instruction of Experiment In Turkish

Yönergeler Kağıdı

Hoşgeldiniz!

Deneysel çalışmamıza katılımınız için teşekkür ederiz. Aşağıdaki yönergeleri takip ederek

çalışmamızı tamamladığınızda önceden belirlenen bir miktarda para ödemesi de almaya hak

kazanacaksınız.

Kazanacağınız miktar çalışmamızda vereceğiniz kararlara gore belirlenmiş olup diğer

katılımcıların verdiği kararlara göre değişecektir.

Her katılımcının kararları ve karşılık gelen kazançları gizli tutulacaktır. Bunlarla ilgili diğer

katılımcılara herhangi bir bilgi verilmeyecektir.

Lütfen çalışmamız boyunca telefonlarınızı sessiz durumda bulundurunuz ve diğer

katılımcılarla konuşmayınız.

Herhangi bir sorunuz ya da probleminiz olması durumunda lütfen elinizi kaldırınız ve

ekibimizden birisinin size yardımcı olmasını bekleyiniz.

Çalışmamız boyunca vereceğiniz bütün cevaplar gizli tutulacak ve çalışmamızın amacı

dışında kesinlikle kullanılmayacak ve paylaşılmayacaktır.

Deneysel çalışmamızdan sonra cevaplamanız gereken anketimiz üç ana bölümden oluşmakta

olup sırasıyla bireysel, organizasyonel ve uluslararası faaliyetlerle ilgili sorulara cevap

vermeniz istenecektir. İstenildiği takdirde çalışmamızın sonuçları bireysel olarak

katılımcılarımızla paylaşılacaktır. Anketimizi tamamlamak tahmini olarak en çok bir saatinizi

alacaktır. Zamanınızı ayırdığınız ve çalışmamıza katıldığınız için teşekkür ederiz.

OYUN A

Bu deneysel çalışmada birazdan açıklanacak olan durumda A ya da B stratejilerinden

hangisini seçeceğinizi belirtmeniz gerekmektedir. Biri daha önceden bilgilendirilmiş ve diğeri

bilgilendirilmemiş olan iki oyuncu, “L” ve “R” oyunlarını oynayacaktır ve bu oyunlarda

verdikleri kararlara göre alacağı ödüller aşağıdaki tabloda verilmiştir. Bu oyunda

bilgilendirilmiş (I) ya da bilgilendirilmemiş (U) oyuncular olarak ayrı ayrı karar vermeniz

istenecektir. Eğer I oyuncusu durumundaysanız (L ve R oyunlarından hangisini oynadığınızı

biliyorsunuz demektir) her oyun için ayrı iki strateji belirleme hakkına sahip olacaksınız. Eğer


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U oyuncusu durumundaysanız (bu durumda oynadığınız oyunun L mi yoksa R oyunu mu

olduğu bilgisine sahip değilsiniz demektir) her iki oyun için de ortak tek bir strateji kararı

vermeniz gerekecektir. U oyuncuları bir bedel (X) ödeyerek I oyuncusu konumuna geçme

hakkına sahip olacaklardır. X bedeli €2.5 veya €5 olacaktır. Bunu istemeniz durumunda iki

oyun için de farklı iki strateji seçme hakkına sahip olacaksınız. Senaryodaki diğer oyuncu (I)

sizin bilgilendirilmiş olmayı seçip seçmediğiniz konusunda bilgilendirilecektir. Size verilecek

olan ankette her durum tanımlanmış olup, her durum ve senaryo için vereceğiniz kararları

vermeniz istenmektedir.

Cevaplarınız kaydedildikten sonra, rastsal olarak sizin rolünüz ve karşınızdaki kişinin

kararları belirlenecektir. Sizin ve eşleştiğiniz senaryodaki kişinin verdiği kararlara göre

alacağınız ödül belirlenmiş olacaktır.

Lütfen size verilen formda her durum için vereceğiniz kararları seçiniz. Bitirdiğinizde size

atanan senaryo ve aldığınız ödül hakkında bilgilendirileceksiniz.

L ve R oyunları için oyuncuların verdikleri karara göre alacakları ödül matrisi:

Oyun L

Yabancı/Yerel A B

A (11,11) (9,10)

B (10,9) (8,8)

Oyun R

Yabancı/Yerel A B

A (18,18) (15,19)

B (19,15) (16,16)


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Örnek Cevap:

X=€5.0 iken ve oyuna bilgilendirilmemiş bir yabancı firma olarak başlayıp bilgilendirilmiş

yerel bir firmaya karşı oynadığımda bilgilendirilmeyi tercih ediyorum. L oyununda A

stratejisini, R oyununda ise B stratejisini oynamayı tercih ediyorum.

Ek Bilgilendirme

Stratejik Baskınlık: Oyun teorisine göre bir oyuncu için bir strateji rakibinin ne

oynadığından bağımsız olarak her zaman diğer stratejiden daha iyi sonuç getiriyorsa, o strateji

diğerine baskındır diyebiliriz. Örneğin, B stratejisi A’ya baskın ise, bir oyuncu için B’yi

seçmek rakibinin ne seçtiğine bakmaksızın her zaman A’yı seçmekten daha iyi sonuç verir.

Eğer iki oyuncu da bu baskın stratejiye sahipse, mantıklı olarak her oyunda bunu

oynayacaklardır. Ancak bu her zaman Pareto optimal bir durum değildir. Yani bazı

durumlarda iki oyuncu için de daha iyi sonuç verecek stratejiler var olabilir. Buna Tutsak

İkilemi oyununu örnek olarak gösterebiliriz.

Tutsak İkilemi: Bu oyunda oyuncuların hapishane mahkumları olduğunu ve karşı taraf

aleyhinde itirafçılık yapma ya da sessiz kalma kararlarından birini vereceğini varsayıyoruz.

Eğer A mahkumu itirafçılık yapar ve B mahkumu sessiz kalırsa, A mahkumu serbest kalacak

ve B mahkumu 3 yıl hapis yatacaktır. Oyuncuların rolleri değiştiğinde de aynı durum

olacaktır. İki oyuncu da itirafçılık yaparsa 2şer yıl hapis yatacaklardır. İki oyuncu da sessiz

kalırsa 1er yıl hapis yatacaklardır. Böyle bir durumda, mahkumların baskın stratejisi itirafçılık

yapmak olmasına rağmen, eğer işbirliği yapsalar ve sessiz kalsalar diğer durumda ortaya

çıkacak sonuca göre daha iyi bir sonuç elde etmiş olacaklardı.

İşbirliği Fenomeni: Bazı durumlarda bir marketteki oyuncular talebi karşılamak için üretim

miktarına karar verirken rekabet yerine işbirliği içerisinde hareket edebilirler. Bunun sebebi

ise diğer oyuncularla işbirliği içerisinde hareket ederek daha fazla talebi karşılayabiliyor

olmaları ve dolayısıyla daha fazla kar yapmalarıdır. Çalışmamıza konu olan oyunda da bu

durumla karşılaşmak mümkündür. Örneğin, iyi talep senaryosunda (R oyunu), her iki oyuncu

da işbirliği içerisinde A stratejisini izleyerek dominant stratejileri olan B stratejisini oynamaya

kıyasla daha fazla getiri sağlayabilirler. Ancak bu durum yabancı oyuncunun oynadığı


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senaryoyu bilip bilmemesine bir başka deyişle o markete G değerinde bir yatırım yapıp

yapmamasına bağlıdır. Eğer yabancı oyuncu düşük-G değerinde bir yatırım gerçekleştirip

oynadığı oyun hakkında bilgi sahibi olursa, işbirliği için çaba gösterdiği sonucuna varılabilir.

Aynı şekilde yüksek-G yatırımını yapan oyuncu da işbirliğine çok daha yatkın diyebiliriz. Bu

durumda karşıdaki oyuncu da bu tarz oyunculara karşı oynarken işbirliğine daha yatkın

olacaktır. Ancak bu durum her zaman geçerliliğini korumaz. Bazen yerel oyuncu işbirliği

yerine rekabeti seçerek kendisinin daha fazla rakibinin ise daha az getiri almasını isteyebilir.

Buna sebep olarak yerel oyuncunun daha fazla kâr elde etmek istemesi veya işbirliğine

yanaşmak istememesi verilebilir. Burada belirleyeci faktör yerel oyuncunun risk eğilimidir.

Bu durumun tam tersi yani yabancı oyuncunun işbirliğine yanaşmaması da meydana gelebilir

ve sebepler yine aynıdır.

OYUN B

Bu deneysel çalışmamızın yönergeleri oldukça basit. Dikkatli bir şekilde yönergeleri

uyguladığınızda çalışma sonunda bir para ödülü elde edeceksiniz.

Bu çalışmamızda hedefimiz katılımcılarımızın riskten kaçınma derecelerini tespit etmek

olacaktır. Bu amaç doğrultusunda sizden A ve B stratejilerinden birini tercih etmeniz

istenmektedir. A stratejisi güvenli bir seçime karşılık gelirken B stratejisi ise daha riskli bir

seçim demek olacaktır. Size ekte verilen tablodaki olasılıklara bağlı olarak seçiminize karşılık

gelen büyük ya da küçük ödülü alacaksınız. Sizden olasılıkların değişeceği 19 ayrı durum için

A ve B stratejileri arasında bir tercih yapmanız istenecektir. Adımlar ilerledikçe yüksek ödülü

alma ihtimaliniz giderek artıyor olacaktır. Örneğin, L.10 durumunda A stratejisini seçtiğinizde

50% ihtimalle büyük ödülü alırken (€12) B stratejisini seçtiğinizde yine 50% ihtimalle büyük

ödülü (€22) alacaksınız. Diğer durumda, 50% ihtimalle, her iki stratejinin de küçük ödülünü

alacaksınız.

Yönergeler açık değilse ve herhangi bir sorunuz olursa çekinmeden sorabilirsiniz.

Katılımınız için teşekkür ederiz.

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