1.

Behavioral patterns of environmental

performance
evaluation programs
2. Performance evaluation and herd behavior in a
laboratory financial
market

NURMA WAHYUNI (1501103010119)

EFITAMALASARI (16011030100 15)
 ABSTRACT
During the past decades numerous environmental performance
evaluation programs have been developed and implemented on
different geographic scales. This paper develops a taxonomy of
environmental management behavioral patterns in order to provide a
practical comparison tool for environmental performance evaluation
programs. Ten such programs purposively selected are mapped
against the identified four behavioral patterns in the form of
diagnosis, negotiation, learning, and socialization and learning.
Overall, we found that schemes which serve to diagnose
environmental abnormalities are mainly externally imposed and have
been developed as a result of technical debates concerning data
sources, methodology and ranking criteria.
Introduction

Since the 1970s, environmental

protection has become one of the core
tasks of the government. Global,
regional, and national policy makers
have declared their ambition to
improve the environment and pursue
sustainable development driven by
universally agreed principles and goals
at the UN Conferences related to the
environment, the Millennium
Development Goals (especially goal No.
7 concerning environmental
sustainability) and based thereon
various implementations of the Agenda
21 cascaded down to national and local
level
Categorization of environmental
management behaviors

• Addressing environmental challenges

requires both scientific knowledge
and collective actions. Usually, it
involves multiple stakeholders in
problem identification and solution
finding for pollution control, eco-
conservation, and green
transformation
• Efforts in addressing environmental
challenges may take different
forms. It can be scientific research
conducted in labs, by a group of
scientists who share common goals.
Data and Method
For analyzing behavioral patterns by
design of environmental
performance evaluation programs,
we selected ten quantitative
evaluation schemes with global,
regional, and/or national coverage.
We mainly adopt a desktop research
method of data collection,
complemented with primary data
collected from the first author's
participation in OECD environmental
performance review for China and
the assessment of provincial
environmental performance in China
by the YCELP and its partners.
Design of and roles played by the ten selected
quantitative evaluation schemes

The allocation of the ten selected

quantitative evaluation schemes to the
four roles of performance evaluation
is:
1. Diagnosing
2. Learning
3. Influencing and bargaining
4. Social and learning
 Conclusion
ALTHOUGH THIS PAPER HAS BEEN ABLE TO BROADLY
CLASSIFY EACH OF THE SCHEMES, BY ITS FUNCTION
ACCORDING TO A FRAMEWORK OF FOUR MANAGEMENT
MECHANISMS IT HAS NOT BEEN POSSIBLE AT THIS STAGE TO
SUPPORT A DEFINITE CONCLUSION ON WHICH SCHEME IS
DESIRABLE OR UNDESIRABLE FOR ADDRESSING
ENVIRONMENTAL CHALLENGES.
THUS, THIS STUDY SUGGESTS A SYSTEM APPROACH TO
ENVIRONMENTAL MANAGERS AND POLICYMAKERS IN
ADOPTING EVALUATION PROGRAMS FOR ADDRESSING WICKED
ENVIRONMENTAL CHALLENGES
 We consider the effect of performance
evaluation on the herd behavior of fund managers
in a laboratory financial market. Subjects acting as
fund managers receive imperfect private
information concerning the fundamental value of a
stock, which they then trade in sequence with a
market maker. When prices are flexible, subjects
regard their private information and herd less
frequently than when the price is constant. When
price is fixed, subjects evaluated by relative
performance tend to "go with the flow" to reduce
any price deviation from their
peers, but when the price is flexible, herd
behavior almost disappears under relative
performance evaluation as the increasing trading
costs squeeze the net profit of follow-up
imitators. Overall, the likelihood of rational
decisions under relative performance evaluation is
higher than under absolute performance evaluation
 Extensive empirical evidence
suggests that herding is quite
common among fund Managers.
Indicate that the herd behavior of
career-concerned fund managers
could be induced by analyst
recommendation revisions, especially
under a consensus analyst
downgrade, and this could
destabilize stock prices.
Overall, they conclude that an informational
cascade is impossible when new information
is fully reflected in prices.
in a laboratory financial market by comparing
herd behavior
between markets with a flexible price
mechanism (where a market maker updates
asset prices according to trade history) and
markets with a fixed price mechanism
(where asset prices are constant). Their
results reveal that the frequency of herding
under a flexible price mechanism
is lower than is that under a fixed price
mechanism, but unlike the predictions of the
theoretical models, the flexible price does
not completely prevent herding.
 Experimental design

WE DESIGNED OUR EXPERIMENT TO OBSERVE

HERD BEHAVIOR UNDER TWO DIFFERENT
PERFORMANCE EVALUATION MECHANISMS
AND TWO ALTERNATIVE PRICING
MECHANISMS. THE EXPERIMENTAL ANALYSIS
IS BASED ON THE INFORMATION CASCADE
MODEL IN BIKHCHANDNI, HIRSHLEIFER, AND
WELCH.
The trading market in each session consisted of six participants acting as fund managers
with the computer acting as the market maker. The procedure was as follows:
1. Each session commenced with a public reading of the instructions, followed by 10
trading periods.
2. At the beginning of each period, the computer assigned a random number between 1
and 6 to each subject without replacement. Then subjects were asked to trade one after
another, following the assigned order from 1 to 6.
3. Before deciding whether to sell or buy a stock at a given price proposed by the market
maker in each trading period, each trader received a private signal on the value of the
stock.
Subjects also observed the history of past trades.
4. At the end of the trading period, we randomly chose one of the 10 periods to
determine the real payoff for the subjects.
5. At the end of the sessions, we introduced the Holt and Laury (2002) risk preference
task to measure individual risk aversion. We use the crossover point, where the subject
switches from the safe option to the risky option, to infer the degree of risk aversion.
 When price is fixed and there is absolute
performance evaluation.

the trading price is fixed and equals the asset’s

unconditional expected value, i.e., formula (2). As in the
example in Table 2, to maximize the expected value of
payoff, it is obvious that the trader should ignore
his/her private signal and buy once the excess demand
is either higher than or equal to 2, and similarly ignore
his/her private signal and sell once the excess demand
is either less than or equal to –2. This brings about herd
behavior.
 Analysis of herding

• Analysis of rational behavior

There is an important assumption applied in
deducing our models, which is that subjects are
rational traders, making full use of any available
information and acting in a Bayesian
way. During our experiments, a rational subject
would join the majority (herd) under a fixed price,
and follow his/her own signal (not herd) under a
flexible price when potential
information cascades existed. However, subjects
are not always as rational as we expect.
 Empirical analysis

We employ two logit models to examine the effect of

incentives on herd behavior under the fixed and flexible
price mechanisms. The dependent variable is Herd,
which is a dummy variable, and which equals one if
herding occurs when there is a potential
informationcascade, and otherwise zero. We set a
dummy variable Relative-Evaluation, to equal one for
relative performance evaluation and otherwise zero. |z|
and Risk-Attitude, respectively, represent the absolute
value of the excess demand and subjects’ risk attitude,
as measured by the numbers of safe options chosen in
the lottery choice test. We also include period as a
variable to control for any possible learning effect.
 Conclusion

IN THIS PAPER, WE EXAMINE WHETHER THE

INCENTIVES UNDER TWO DIFFERENT PRICE
MECHANISMS AFFECTS TRADERS’ HERD BEHAVIOR. WE
DESIGN FOUR TREATMENTS WITH RELATIVE/ABSOLUTE
PERFORMANCE EVALUATION UNDER FLEXIBLE/FIXED
PRICE MECHANISMS. FOLLOWING THE BASIC MODELS
IN AVERY AND ZEMSKY (1998), BIKHCHANDNI,
HIRSHLEIFER, AND WELCH (1992), AND CIPRIANI AND
GUARINO (2005), WE PROPOSE SEVERAL PREDICTIONS
ABOUT HERD BEHAVIOR, GIVEN THESE FOUR
ALTERNATIVE TREATMENTS. THE EXPERIMENTAL
RESULTS STRONGLY SUPPORT OUR PREDICTIONS
ABOUT HERD BEHAVIOR, AS DERIVED FROM THE
THEORETIC MODELS.