Decision Making →
- 25 Nov 2009
- Working Paper Summaries
The Devil Wears Prada? Effects of Exposure to Luxury Goods on Cognition and Decision Making
Gandhi once wrote that "a certain degree of physical harmony and comfort is necessary, but above a certain level it becomes a hindrance instead of a help." This observation raises interesting questions for psychologists regarding the effects of luxury. What psychological consequences do luxury goods have on people? In this paper, the authors argue that luxury goods can activate the concept of self-interest and affect subsequent cognition. The argument involves two key premises: Luxury is intrinsically linked to self-interest, and exposure to luxury can activate related mental representations affecting cognition and decision-making. Two experiments showed that exposure to luxury led people to think more about themselves than others. Key concepts include: Luxury does not necessarily induce people to be "nasty" toward others but rather causes them to be less concerned about or considerate toward others. Experiment 1 showed that when primed with luxury, people are more likely to endorse self-interested business decisions (profit maximization), even at the expense of others. Experiment 2 further demonstrated that exposure to luxury is likely to activate self-interest but not the tendency to harm others. Exposure to luxury goods may activate a social norm that it is appropriate to pursue interests beyond a basic comfort level, even at the expense of others. It may be this activated social norm that affects people's judgment and decision-making. Alternatively, exposure to luxury may directly increase people's personal desire, causing them to focus on their own benefits such as prioritizing profits over social responsibilities. Closed for comment; 0 Comments.
- 19 Nov 2009
- Working Paper Summaries
Management and the Financial Crisis (We Have Met the Enemy and He is Us …)
We have spent the past year mired in a global financial crisis that few saw coming and that will plague us for years to come. Such crises are gut-wrenching. Collectively and individually, we search for causes and solutions. Too often, we look for quick fixes that do long‐term damage, or we put the equivalent of duct tape on obvious problems, missing the true root causes. HBS professor William A. Sahlman argues that the macroeconomic problems were the result of terrible microeconomic decisions. The root cause of bad decision‐making resides in the nexus of culture, incentives, control and measurement, accounting, and human capital. We now have a unique opportunity to force a review of all the players in the financial system, from individual consumers to politicians and regulators to management teams at financial services firms. Key concepts include: Management needs a new kind of comprehensive analysis monitor. The new entity would take an objective, hard‐nosed look at major financial services firms on a holistic basis. The new monitor would learn from working with many players in an industry. Auditing the best and worst firms would create powerful tools for improving practice. Beyond introducing this new player to the broad system of corporate governance, the most important and most difficult changes are those required of managers, who must look hard at risk and reward. Closed for comment; 0 Comments.
- 26 Oct 2009
- Lessons from the Classroom
The New Deal: Negotiauctions
Whether negotiating to purchase a company or a house, dealmaking is becoming more complex. Harvard Business School professor Guhan Subramanian sees a new form arising, part negotiation, part auction. Call it the negotiauction. Here's how to play the game. Key concepts include: In a negotiauction, the rules are never perfectly pinned down, which creates both opportunities and challenges. The three common negotiauction moves are set-up, rearranging, and shut-down. Negotiauctions help in the current economic downturn by providing a more nuanced mechanism and better outcome for both parties. Closed for comment; 0 Comments.
- 07 Oct 2009
- Working Paper Summaries
Specific Knowledge and Divisional Performance Measurement
Performance measurement is one of the critical factors that determine how individuals in an organization behave. It includes subjective as well as objective assessments of the performance of both individuals and subunits of an organization such as divisions or departments. Besides the choice of the performance measures themselves, performance evaluation involves the process of attaching value weights to the different measures to represent the importance of achievement on each dimension. This paper examines five common divisional performance measurement methods: cost centers, revenue centers, profit centers, investment centers, and expense centers. The authors furnish the outlines of a theory that attempts to explain when each of these five methods is likely to be the most efficient. Key concepts include: Each of these methods can be seen as providing an alternative way of aligning corporate decision-making authority with valuable "specific knowledge" inside the organization. Jensen and Meckling's theory suggests that cost and revenue centers work best in cases where headquarters has (or can readily obtain) good information about cost and demand functions, product quality, and investment opportunities. Decentralized profit and investment centers tend to supplant revenue and cost centers when managers of business units have a significant informational advantage over headquarters. Closed for comment; 0 Comments.
- 24 Sep 2009
- Working Paper Summaries
“I read Playboy for the articles”: Justifying and Rationalizing Questionable Preferences
We want others to find us good, fair, responsible and logical; and we place even more importance on thinking of ourselves this way. Therefore, when people behave in ways that might appear selfish, prejudiced, or perverted, they tend to engage a host of strategies designed to justify questionable behavior with rational excuses: "I hired my son because he's more qualified." "I promoted Ashley because she does a better job than Aisha." Or, "I read Playboy for the articles." In this chapter from a forthcoming book, HBS doctoral student Zoë Chance and professor Michael I. Norton describe various means of coping with one's own questionable behavior: through preemptive actions and concurrent strategies for re-framing uncomfortable situations, forgoing decisions, and forgetting those decisions altogether. Key concepts include: Because people do not want to be perceived as (or feel) unethical or immoral, they make excuses for their shameful behavior—even to themselves. People cope with their own questionable actions in a number of ways, from forgoing certain experiences to rationalizing, justifying, and forgetting—a remarkable range of strategies allowing them to maintain a clear conscience even under dubious circumstances. Closed for comment; 0 Comments.
- 20 Aug 2009
- Working Paper Summaries
A Decision-Making Perspective to Negotiation: A Review of the Past and a Look into the Future
The art and science of negotiation has evolved greatly over the past three decades, thanks to advances in the social sciences in collaboration with other disciplines and in tandem with the practical application of new ideas. In this paper, HBS doctoral student Chia-Jung Tsay and professor Max H. Bazerman review the recent past and highlight promising trends for the future of negotiation research. In the early 1980s, Cambridge, Massachusetts, was a hot spot on the negotiations front, as scholars from different disciplines began interacting in the exploration of exciting new concepts. The field took a big leap forward with the creation of the Program on Negotiation, an interdisciplinary, multicollege research center based at Harvard University. At the same time, Roger Fisher and William Ury's popular book Getting to Yes (1981) had a pronounced impact on how practitioners think about negotiations. On a more scholarly front, a related, yet profoundly different change began with the publication of HBS professor emeritus Howard Raiffa's book The Art and Science of Negotiation (1982), which for years to come transformed how researchers would think about and conduct empirical research. Key concepts include: Even as it has transitioned from decision analysis to behavioral decision research to social psychology, the decision perspective to negotiation has remained central to practitioners and academics alike, offering both practical relevance and the foundation for exciting new lines of research. Some of the most recent directions being pursued are surprises that early contributors to the decision perspective could have never predicted, as negotiation scholars engage with other disciplines and draw insights from diverse fields ranging from philosophy to neurobiology. Such collaboration is a healthy sign for an ongoing line of negotiation research. Closed for comment; 0 Comments.
- 13 Aug 2009
- Working Paper Summaries
In Favor of Clear Thinking: Incorporating Moral Rules into a Wise Cost-Benefit Analysis
Policy decisions may be the most important set of decisions we make as a society. In this realm, moral rules often play an active and dysfunctional role. The typical way in which we make decisions—by weighing them individually—leads us to overuse moral rules in a manner that is inconsistent with the more reflective set of preferences we would identify through joint consideration of options. In their response to a companion article in Perspectives on Psychological Science, Max Bazerman, of HBS, and Joshua D. Greene, of Harvard University, argue that cost-benefit analysis (CBA) is unfairly stereotyped. The critique of CBA in the companion article could be better framed as a set of considerations that can contribute to more careful CBAs. Key concepts include: Good decision analysts pay attention to potential misapplications of cost-benefit analysis. CBA is not perfect, for many reasons. But CBA needs to be compared against an alternative, and the development of that alternative thus far is limited. Closed for comment; 0 Comments.
- 05 Feb 2009
- What Do You Think?
Why Can’t We Figure Out How to Select Leaders?
Managers discuss their own experience in organizations in response to February's column. All good leaders teach as well as learn, says Jim Heskett. Is it possible with any degree of confidence to select people for certain leadership jobs? (Forum now closed. Next forum begins March 5.) Closed for comment; 0 Comments.
- 20 Oct 2008
- Research & Ideas
The Seven Things That Surprise New CEOs
In the newly released book On Competition, Professor Michael E. Porter updates his classic articles on the competitive forces that shape strategy. We excerpt a portion on advice for new CEOs, written with HBS faculty Jay W. Lorsch and Nitin Nohria. Key concepts include: Most new chief executives are taken aback by unfamiliar new roles, time and information limitations, and altered professional relationships. The CEO must learn to manage organizational context rather than focus on daily operations. The CEO must not get totally absorbed in the role. Closed for comment; 0 Comments.
- 16 Oct 2008
- Working Paper Summaries
Making the Gambler’s Fallacy Disappear: The Role of Experience
The Gambler's Fallacy refers to the belief that chance is a self correcting process. The longer the random run of one outcome, the stronger the belief that the opposite outcome is due to appear. This paper asks whether the way we acquire information, by sequential experience or by simultaneous description, plays a critical role in the emergence of the bias in a binary prediction task (betting on red or black roulette outcomes, for example). The results show that the fallacy only occurs when decision makers experience outcomes over time and not when past outcomes are revealed all at once. The question is interesting since several recent papers on decisions from experience and descriptions suggest that the way people acquire information can have a significant effect on behavior. Key concepts include: This paper's main contribution is in delineating a boundary condition for the emergence of a well-known cognitive bias. Taken together, results suggest that qualitatively different processes are engaged when people encounter information sequentially over time. Closed for comment; 0 Comments.
- 06 Oct 2008
- Research & Ideas
Updating a Classic: Writing a Great Business Plan
Harvard Business School professor William A. Sahlman's article on how to write a great business plan is a Harvard Business Review classic, and has just been reissued in book form. We asked Sahlman what he would change if he wrote the article, now a decade old, today. Key concepts include: A business plan can't be a tightly crafted prediction of the future but rather a depiction of how events might unfold and a road map for change. The people making the forecasts are more important than the numbers themselves. What matters is having all the required ingredients (or a road map for getting them), not the exact form of communication. The best money comes from customers, not external investors. Closed for comment; 0 Comments.
- 28 Aug 2008
- Working Paper Summaries
How Can Decision Making Be Improved?
While scholars can describe how people make decisions, and can envision how much better decision-making could be, they still have little understanding of how to help people overcome blind spots and behave optimally. Chugh, Milkman, and Bazerman organize the scattered knowledge that judgment and decision-making scholars have amassed over several decades about how to reduce biased decision-making. Their analysis of the existing literature on improvement strategies is designed to highlight the most promising avenues for future research. Key concepts include: People put great trust in their intuition. The past 50 years of decision-making research challenges that trust. A key task for psychologists is to identify how and in what decision-making situations people should try to move from intuitive, emotional thinking to more deliberative, logical thinking. The more that researchers understand the potentially harmful effects of some biased decision-making, the more important it is to have empirically tested strategies for reaching better decisions. Closed for comment; 0 Comments.
- 25 Aug 2008
- Research & Ideas
HBS Cases: Walking Away from a $3 Billion Deal
Managers of the ABRY Fund V were so successful they had investors waiting to pour in an additional $3 billion. But to invest that much would require trade-offs that could jeopardize the chemistry that made the fund successful in the first place. Take the money or walk away? From HBS Bulletin. Key concepts include: The case highlights tensions in the private equity business between generating wealth for the firm's investment professionals and the investors in the firm—the so-called limited partners. Co-founder Royce Yudkoff declines the $3 billion investments, believing the best way to prosper over the long haul is to generate a high rate of return rather than increasing dollars under management. Closed for comment; 0 Comments.
- 06 Jun 2008
- What Do You Think?
Why Don’t Managers Think Deeply?
Online forum closed. Summing Up. According to Gerald and Lindsay Zaltman, nearly all research techniques commonly used today probe humans only at their conscious level, though it is the subconscious level that really determines behavior. Closed for comment; 0 Comments.
- 29 May 2008
- Working Paper Summaries
Some Neglected Axioms in Fair Division
This paper considers allocation and bargaining problems, and introduces conditions that one might expect fair procedures to satisfy. However, not all conditions one might hope for can be satisfied simultaneously. Furthermore, some apparently plausible and widely proposed axioms and procedures have consequences whose undesirability clearly goes far beyond what can be excused in this way. Thus pitfalls lurk in the field of fair division. Key concepts include: The first condition, "nondiscrimination," asserts that, in an allocation problem, if two agents receive probability shares of the same item and no chance of any other, then their shares should be proportional to their entitlements. The remaining, "monotonicity" conditions apply to two agents and assert that a change in the feasible set that increases the utility cost to one agent of providing any given utility gain to the other should not hurt the first agent, or at least the solution should not change. Closed for comment; 0 Comments.
- 13 Mar 2008
- Working Paper Summaries
An Investigation of Earnings Management through Marketing Actions
Earnings management behavior may be divided into two categories: 1) the opportunistic exercise of accounting discretion; and 2) the opportunistic structuring of real transactions. This paper focuses on the latter by providing evidence that managers use retail-level marketing actions (price discounts, feature advertisements, and aisle displays) to influence the timing of consumers' purchases in relation to their firms' fiscal calendars and financial performance. The results will be of interest to practitioners negotiating with suppliers as well as those responsible for setting price and promotion strategy in response to competitor actions, and practitioners responsible for designing incentive-based compensation as well as regulators monitoring reporting of fiscal period-ending promotion. Key concepts include: Marketing actions that produce short-term results occur more frequently when firms have incentive to manage reported earnings upwards. While these actions boost unit sales, revenue, and profits in the near term, the resulting gains come at the expense of long-term profit and may not be in the strategic interest of the firm. These results imply that firms make systematic decisions across their product lines to manage earnings and indicate the behavior is being driven by parties higher in the firm than the brand managers. Closed for comment; 0 Comments.
- 15 Feb 2008
- Working Paper Summaries
Embracing Commitment and Performance: CEOs and Practices Used to Manage Paradox
How do chief executives establish strategic practices around their visions and intents? How do such practices make it possible to create both high commitment and high performance? The central puzzle for HBS professor emeritus Michael Beer and colleagues is not the creation of high commitment per se, but the kind of commitment that is useful for the implementation of strategy and sustainable performance. Beer et al. sought out major companies in North America and Europe that had a history of sustainable, above-average financial performance, and where there were indications of the companies being high-commitment organizations. They then conducted in-depth interviews with 26 CEOs of such companies, asking about activities and practices that help create commitment and performance. Key concepts include: The CEOs did not frame choices as "either-or" but rather "both-and." They argued that seemingly conflicting outcomes cannot be made the subject of choice, nor can they be balanced. It is the role of a CEO to embrace paradoxes and at least at the espoused level try to reconcile them. The research team found 5 groups of interrelated managerial practices that characterize this kind of strategic management. The practices engage employees emotionally and rationally, and facilitate strategic change, rather than implement it top-down. Closed for comment; 0 Comments.
- 01 Feb 2008
- What Do You Think?
How Sustainable Is Sustainability in a For-Profit Organization?
Online forum now closed. For managers, sustainability can mean the integration and intersection of social, environmental, and economic responsibilities. The concept is admirable, says Jim Heskett, but does it also confuse managers entrusted with the bottom line? How should they make trade-offs? Jim sums up reader responses. Closed for comment; 0 Comments.
- 11 Jan 2008
- Working Paper Summaries
See No Evil: When We Overlook Other People’s Unethical Behavior
Even good people sometimes act unethically without their own awareness. This paper explores psychological processes as they affect the ethical perception of others' behavior, and concludes with implications for organizations. First, there is a tendency for people to overlook unethical behavior in others when recognizing such behavior would harm them. Second, people might readily ignore unethical behavior when others have an agent do their dirty work for them. Third, gradual moral decay leads people to grow comfortable with behavior to which they would otherwise object. Fourth, the tendency to value outcomes over processes can lead us to accept unethical processes for far too long. Key concepts include: Most people value ethical decisions and behavior, and strive to be good. Yet psychological processes sometimes lead them to engage in questionable behaviors that are inconsistent with their own values and beliefs. It is common to fail to notice or act on information when dealing with ethically relevant decisions. Organizational leaders must understand these processes and make the structural changes necessary to reduce the harmful effects of human psychological and ethical limitations. Closed for comment; 0 Comments.
Going Through the Motions: An Empirical Test of Management Involvement in Process Improvement
How can managers better lead their organizations to improve work processes? Describing their study of hospitals over an 18-month period, HBS professor Anita L. Tucker and Harvard School of Public Health professor Sara J. Singer detail how and why managers' taking action was more effective than their communicating about actions taken. Findings suggest, first, that taking action on known problems in specific work areas on at least a quarterly basis may improve the organizational climate for improvement. Second, the study indicates that managers would be well advised to take action-preferably substantive and intense action-in response to frontline workers' communications about problems. Overall, the research provides insight for senior managers who want to improve their organization's climate for process improvement. Key concepts include: Resolving a small number of problems is better than collecting data about many problems. Giving feedback to employees about actions taken can worsen their perceptions of the climate for improvement if the actions were superficial or punitive. In other words, managers do not fool frontline workers by going through the motions of process improvement. The risk of surfacing a large number of problems is twofold: (1) identifying many problems simultaneously may overwhelm people with a new awareness of the full extent of problems within the organization, complicating and slowing decision processes and spreading already-stretched resources, and (2) it may reinforce cynicism among frontline workers that managers are uncommitted to improving the organizations' work systems. Closed for comment; 0 Comments.