SISL Caltech 20 Nov 03 Creating instant culture in the lab Colin F. Camerer (Caltech) Roberto Weber...

SISL Caltech 20 Nov 03

Creating instant culture in the labCreating instant culture in the labColin F. Camerer (Caltech)Colin F. Camerer (Caltech)

Roberto Weber (Carnegie-Mellon)*Roberto Weber (Carnegie-Mellon)*



Roberto Weber (Carnegie-Mellon)*Roberto Weber (Carnegie-Mellon)*

““This corporate culture stuff is great’” the This corporate culture stuff is great’” the chairman raved at dinner following the talk. chairman raved at dinner following the talk. Then, turning to his president, he Then, turning to his president, he demanded, “I want a culture by Monday.” demanded, “I want a culture by Monday.” (Business Week, 1986)(Business Week, 1986)



Roberto Weber (Carnegie-Mellon)*Roberto Weber (Carnegie-Mellon)*““This corporate culture stuff is great’” the chairman raved at dinner This corporate culture stuff is great’” the chairman raved at dinner following the talk. Then, turning to his president, he demanded, “I following the talk. Then, turning to his president, he demanded, “I want a culture by Monday.” (Business Week, 1986)want a culture by Monday.” (Business Week, 1986)

““Culture” is focal principles for coordination in team Culture” is focal principles for coordination in team games** games**

““How business is done” (informal rules, specify incomplete contracts) How business is done” (informal rules, specify incomplete contracts) Create one facet of culture– “codes”– `instantly’ in Create one facet of culture– “codes”– `instantly’ in the labthe lab Expands behavioral economics to include Expands behavioral economics to include “pragmatics”“pragmatics” Measure culture & efficiency clearly (good culture = Measure culture & efficiency clearly (good culture = $$$)$$$) Examples:Examples:

Founder effectsFounder effects Flexibility vs rigidityFlexibility vs rigidity Merger failure (Weber & Camerer, Mgt Sci 03)Merger failure (Weber & Camerer, Mgt Sci 03)

* Assistance from Charlie Hornberger, Ming Hsu, Galen Loram, John Lin (Caltech), Alice * Assistance from Charlie Hornberger, Ming Hsu, Galen Loram, John Lin (Caltech), Alice Oh (Michigan), Scott Rick (CMU)Oh (Michigan), Scott Rick (CMU)**Arrow ‘74; Cremer QJE 93; Camerer-Vepsalainen, Strat Mgt J ’88; Kreps ’90 in Alt-**Arrow ‘74; Cremer QJE 93; Camerer-Vepsalainen, Strat Mgt J ’88; Kreps ’90 in Alt-ShepsleShepsle


Organizational cultureOrganizational culture

Culture is Culture is Values: what are the accepted choices in coordination Values: what are the accepted choices in coordination

gamesgames ““How business is done around here”How business is done around here”

expressed through expressed through symbols (Nike “swoosh” tattos on “Ekins”)symbols (Nike “swoosh” tattos on “Ekins”) Personifications (heroes– Feynman; villains)Personifications (heroes– Feynman; villains) Rituals (Ditch Day)Rituals (Ditch Day) CodeCode

Key elementsKey elements Develops through shared experienceDevelops through shared experience Can be efficientCan be efficient Difficult to measureDifficult to measure

Functionalist (economic view): Functionalist (economic view): Cultures are informal rules for resolving conflict in the face Cultures are informal rules for resolving conflict in the face

of contractual incompleteness of contractual incompleteness Examples: “The customer is always right”, Southwest Air adExamples: “The customer is always right”, Southwest Air ad


Southwest: Culture is an unwritten rulebookSouthwest: Culture is an unwritten rulebook


Organizational cultureOrganizational culture

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

Cremer, 1993Cremer, 1993


Picture-naming as organizational code-creationPicture-naming as organizational code-creation

Subjects develop “codes” to describe picturesSubjects develop “codes” to describe pictures `Managers’ describe target pictures`Managers’ describe target pictures `Employees’ must choose the same pictures`Employees’ must choose the same pictures Payoffs = $.60 - $.30/minute - $.50/mistakePayoffs = $.60 - $.30/minute - $.50/mistake

“ “good” culture is good” culture is fastfast & & clearclear Like when one person “sees” a situation and Like when one person “sees” a situation and

must quickly convey what the situation ismust quickly convey what the situation is Emergency room codes (EKG, ICU), police Emergency room codes (EKG, ICU), police

dispatcher (Code Six), military (WMD), dispatcher (Code Six), military (WMD), restaurants (“radar love”).restaurants (“radar love”).


Advantages of laboratory experimentsAdvantages of laboratory experiments

Code can be created rapidly & Code can be created rapidly & measuredmeasured

Experiments create “instant culture”…Experiments create “instant culture”…like “cultures” in Petri dishes like “cultures” in Petri dishes culture “by Monday”culture “by Monday”

Experiments are exploratory: Trying to Experiments are exploratory: Trying to bring a vaguely-understood bring a vaguely-understood phenomenon to life & study its phenomenon to life & study its propertiesproperties

No structural theory testing…yet.No structural theory testing…yet.


Why study Why study codescodes??

Codes are Codes are part part of culture, & have properties of culture, & have properties similar similar to other elements of culture to other elements of culture

PartPart of culture: of culture: Language coordinates activityLanguage coordinates activity Mark who is in, who’s outMark who is in, who’s out

Similar properties Similar properties to other parts of culture (e.g. to other parts of culture (e.g. values)values)

Socially sharedSocially shared Takes time to developTakes time to develop ““Clear” culture is efficientClear” culture is efficient Easy to transmit inside, hard to transmit outsideEasy to transmit inside, hard to transmit outside Turnover & mergers create conflictTurnover & mergers create conflict


Codes are a revealing facet of cultureCodes are a revealing facet of culture Colorful examples:Colorful examples:

““Will you drink the Kool-Aid?”Will you drink the Kool-Aid?” Army: SNAFU, BOGSAT, collateral damage, friendly Army: SNAFU, BOGSAT, collateral damage, friendly

fire,fire, Alaskan bush pilots: VFR, IFRAlaskan bush pilots: VFR, IFR Diners: “paint a bow-wow red” Diners: “paint a bow-wow red”

“whiskey down…and it’s walking” “whiskey down…and it’s walking” Hip-hop slang: “bling”, “biters”, Hip-hop slang: “bling”, “biters”, “411”, “Are u “411”, “Are u

feeling me?”feeling me?” Can be nonverbal: Can be nonverbal:

S. African miners tap dance code (“gumboots”)S. African miners tap dance code (“gumboots”) Pagers: 038*2**06*537 [upside down: le[t]’s go to bed]Pagers: 038*2**06*537 [upside down: le[t]’s go to bed]

Codes mark who’s in your group and who’s outCodes mark who’s in your group and who’s out


Codes are a revealing facet of cultureCodes are a revealing facet of culture

Colorful examples (translated):Colorful examples (translated): ““Will you drink the Kool-Aid?” (Jim JonesWill you drink the Kool-Aid?” (Jim Jones Microsoft) Microsoft) Army: SNAFU (situation all f****d up), BOGSAT Army: SNAFU (situation all f****d up), BOGSAT

(bunch of guys sitting around talk), collateral (bunch of guys sitting around talk), collateral damage (civilian casualties)damage (civilian casualties)

Alaskan pilots: VFR (visual flying rules), IFR (I follow Alaskan pilots: VFR (visual flying rules), IFR (I follow river)river)

Diners: “paint a bow-wow red” (hotdog with Diners: “paint a bow-wow red” (hotdog with ketchup); ketchup); “whiskey down…“whiskey down…and it’s walking” (rye toast, to go)and it’s walking” (rye toast, to go)

Hip-hop slang: “bling” (jewelry), “biters” (imitators), Hip-hop slang: “bling” (jewelry), “biters” (imitators),

““411” (information), “Are u feeling me?” 411” (information), “Are u feeling me?” (understanding)(understanding)


Software: User-friendliness permits “total immersion” Software: User-friendliness permits “total immersion” instruction TIMI (one paragraph + quiz)instruction TIMI (one paragraph + quiz)


Examples of picturesExamples of pictures


“Uday Rao,” “Cubeville,” “Lady with typewriter”


“Flowers in back,” “Macarena,” “Cupboard in back”


I. Founder effectsI. Founder effects Which culture is better?Which culture is better?

Centralized / hierarchical / “Top down”Centralized / hierarchical / “Top down” Decentralized / egalitarian / “Bottom up”Decentralized / egalitarian / “Bottom up” Anecdotal evidence of “founder effects”Anecdotal evidence of “founder effects”

What would Walt [Disney] do? What would Walt [Disney] do? George Stigler post-mortem votingGeorge Stigler post-mortem voting Southwest Airlines: Herb Kelleher, “Personality is culture”Southwest Airlines: Herb Kelleher, “Personality is culture” How are you going to replace Herb?How are you going to replace Herb?

CEO Jim Parker: “I’ll do the drinking, and Colleen will do the CEO Jim Parker: “I’ll do the drinking, and Colleen will do the smoking”smoking”

PS: Colleen was Kelleher’s secretary for 34 yrs: personificationPS: Colleen was Kelleher’s secretary for 34 yrs: personification Personification taps power of “facial fusiform area” (FFA) in Personification taps power of “facial fusiform area” (FFA) in

the brain the brain

Compare founder, egalitarian & see which earns $Compare founder, egalitarian & see which earns $ ““Strong founder” = same manager every periodStrong founder” = same manager every period ““Egalitarian” = rotating managers every periodEgalitarian” = rotating managers every period


Results: Founder effects are positive…Results: Founder effects are positive…

““Fixed” manager results in better Fixed” manager results in better performance than “rotating” manager in performance than “rotating” manager in static environment (rounds 1-20)static environment (rounds 1-20) Avg. earnings in fixed groups:Avg. earnings in fixed groups: $0.35$0.35 Avg. earnings in rotating groups: $0.29 (Avg. earnings in rotating groups: $0.29 (p< 0.01)p< 0.01)

Significant (p < 0.03) for all 5-period blocksSignificant (p < 0.03) for all 5-period blocks Observation: Rotating groups do worse…but Observation: Rotating groups do worse…but

seem to have more fun.seem to have more fun. Conjecture: Does their “camraderie” spill Conjecture: Does their “camraderie” spill

over to cooperativeness?over to cooperativeness? post-exp public post-exp public good gamegood game


Figure 1. Average earnings by round (10 sessions in each condition)

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Rotating creates more post-experiment Rotating creates more post-experiment “camraderie” (public good contribution, p=.11)“camraderie” (public good contribution, p=.11)

public goods contributions

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II. Flexibility vs rigidityII. Flexibility vs rigidity

In adapting to a new environment, is it better to In adapting to a new environment, is it better to have a history of adapting to change? have a history of adapting to change? ““Flexible”: Choose from random 8 of 24 city pictures Flexible”: Choose from random 8 of 24 city pictures ““Rigid”: Choose from Rigid”: Choose from samesame 8 city pictures 8 city pictures part II: subset of 8 of 16 part II: subset of 8 of 16 newnew office pictures office pictures

Flexibility advantage: Have “code-making” Flexibility advantage: Have “code-making” capabilitycapability

Rigidity advantage: Work harder adjusting to Rigidity advantage: Work harder adjusting to sudden changesudden change

Result: Flexible groups faster, earn more at first Result: Flexible groups faster, earn more at first ($.11($.11 p=.05) p=.05)


Flexible (pink) do better than rigid (blue)Flexible (pink) do better than rigid (blue)higher payoffs (left) shorter message length (right)higher payoffs (left) shorter message length (right)


III. Cultural conflict in mergersIII. Cultural conflict in mergers

Many mergers fail (acquiring co. returns are Many mergers fail (acquiring co. returns are negative negative on average, on average, esp for stock-financed esp for stock-financed deals)deals)

One source may be unanticipated cultural One source may be unanticipated cultural conflictconflict

““Perfect storm” case: AOL Time WarnerPerfect storm” case: AOL Time Warner ““FYIV” (AOL guys leaving)FYIV” (AOL guys leaving) ““Caligula” (Gerald Levin, Time Warner)Caligula” (Gerald Levin, Time Warner) ““The Wall” (Steve Case, AOL)The Wall” (Steve Case, AOL) ““Assholes Online, NavBarNazis” (TimeWarner Assholes Online, NavBarNazis” (TimeWarner

employees describing AOL)employees describing AOL)


AOL Time Warner: Deep cultural conflictAOL Time Warner: Deep cultural conflict

““AOL was new money, the Internet set. Time Warner was AOL was new money, the Internet set. Time Warner was old money, the established class.” old money, the established class.”

Time Warner journalists send large attachments on email…Time Warner journalists send large attachments on email…hate being forced to use AOL (“internet with training hate being forced to use AOL (“internet with training wheels”)wheels”)

Time Warner boardroom, filled with gifts & history… …Time Warner boardroom, filled with gifts & history… …demolished by AOL for officesdemolished by AOL for offices

AOL officials bring t-shirts. Time Warner exec sniffs: “I get AOL officials bring t-shirts. Time Warner exec sniffs: “I get my shirts done on Saville Row”my shirts done on Saville Row”

AOL execs vulgar, screaming, pulling knives. Time Warner AOL execs vulgar, screaming, pulling knives. Time Warner exec: “We don’t speak like that here”exec: “We don’t speak like that here”


Who won?Who won?


Results from “merger” study Results from “merger” study (Weber & Camerer, 2003, Mgt Sci)(Weber & Camerer, 2003, Mgt Sci)

Two separate pairsTwo separate pairs Start slowly, improve with experienceStart slowly, improve with experience

““Merger”– group of 3 formed from 2 Merger”– group of 3 formed from 2 pairspairs

Merger slows them downMerger slows them down Subjects overestimate speed of merged Subjects overestimate speed of merged

firmfirm Average actual time:Average actual time: 86s86s Average estimated time:Average estimated time: 69s 69s (p < 0.02)(p < 0.02)

““New” and “old” subjects blame each otherNew” and “old” subjects blame each other


Fig 2. Average completion times (11 merger sessions)

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Fig 3. Average completion time(5 control sessions, 11 merger sessions)

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Interesting tidbit: Interesting tidbit: Cultures can have myths/misnomers Cultures can have myths/misnomers

What is this? What is this?

“Lecture”, “classroom”, “cinema”, “crowd inside”“Lecture”, “classroom”, “cinema”, “crowd inside”


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


ConclusionsConclusions Can create simple organizational Can create simple organizational

processes in the labprocesses in the lab ““Firm-level” phenomena/assetsFirm-level” phenomena/assets Control for history & measure efficiencyControl for history & measure efficiency

Results:Results: Having a single founder helps…but may Having a single founder helps…but may

hurt in creating camraderiehurt in creating camraderie Flexible history is Flexible history is betterbetter when moving to when moving to

a new environmenta new environment Mergers: Slow down firms surprisinglyMergers: Slow down firms surprisingly


New directionsNew directions Other experiments & phenomenaOther experiments & phenomena

Theory!Theory! Similar results in machine learning (Luc Steels)Similar results in machine learning (Luc Steels) Hypercode after 500 periods?? Duz it Bcom ths? Hypercode after 500 periods?? Duz it Bcom ths? Content of code (“subitizing” numbers, ethnicity/gender)Content of code (“subitizing” numbers, ethnicity/gender) Does 2-way communication help? Does 2-way communication help? Same-gender matching improves efficiency? (Mars/Venus Same-gender matching improves efficiency? (Mars/Venus

effect)effect) ““Secret code”: Communication with hostile eavesdroppingSecret code”: Communication with hostile eavesdropping

HealthSouth accounting fraud: HealthSouth accounting fraud: ““Team meetings” about filling “the hole” with “dirt”Team meetings” about filling “the hole” with “dirt”

NYC drug dealers: “what if they elley-say aggies-bay in the otty-NYC drug dealers: “what if they elley-say aggies-bay in the otty-spay?” spay?”

““you know what I’m a do, too. I’m a open up ackie-jays” you know what I’m a do, too. I’m a open up ackie-jays” Navajo dinee “windtalkers” in World War IINavajo dinee “windtalkers” in World War II

Mergers with endogeneous quittingMergers with endogeneous quitting Does quitting by “good communicators” leads to downward Does quitting by “good communicators” leads to downward

spiral? spiral?


Figure 1. Average earnings by round (10 sessions in each condition)

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The tale of the (ticker) tapeThe tale of the (ticker) tape

SISL Caltech 20 Nov 03 Creating instant culture in the lab Colin F. Camerer (Caltech) Roberto Weber...

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