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Myopic biases in competitions

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Abstract

In three studies using both laboratory and field data, we show that the focal competitor's strengths and weaknesses feature more prominently in predictions of the outcomes of future competitions than do the strengths and weaknesses of the opponents. People are more confident when their own side is strong, regardless of how strong the competition is. We show that this effect is driven by the fact that people have better information about their own side than the other side, in part because they preferentially seek out information about their own side. Implications for theories of decision making in competitive settings are discussed.

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... Social comparison theory suggests that the presence of other individuals has an impact on motivation and behavior (Festinger, 1954;Garcia, Tor, & Gonzalez, 2006;Tesser, 1988). Furthermore, research on competition suggests that the competitors whom individuals are facing have an influence on their decisions and actions, and they go to different lengths towards understanding their opponents' strengths and weaknesses (Moore & Cain, 2007;Moore, Oesch, & Zietsma, 2007;Radzevick & Moore, 2008). ...
... Also, self-expectations are elevated in competitive environments. Research on competition has documented how competitive environments heighten myopic biases, leading people to become overconfident about their abilities to perform effectively (Moore & Cain, 2007;Radzevick & Moore, 2008). Moreover, selfexpectations are less malleable in competitive settings. ...
... Given that my focus was on competitive environments, self-expectations remained somewhat high even for those with relatively low levels in my study. As previously mentioned, this result is not atypical in competitive settings as individuals participating in these environments are often myopic since they tend to focus on their strengths and neglect their competitors (Moore & Cain, 2007;Radzevick & Moore, 2008). Moreover, research has found that people tend to overestimate their competence in unfamiliar domains (Kruger & Dunning, 1999). ...
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Underdogs are pervasive in competitive and organizational settings, but their theoretical understanding is limited. I build on several fragmented and disparate literatures to understand how being perceived as an underdog impacts employee motivation. Whereas existing research suggests that the low expectations of others are threatening, I contribute to existing theory and research by suggesting that an underdog image has the potential to motivate employees through the desire to prove others wrong and prove oneself right. However, I suggest that whether each of these motives is experienced depends on the characteristics of an underdog image, constituents and competitors. This perspective offers insights into how and why people may be motivated from being perceived as an underdog by others, and considers its consequences for employees. I discuss theoretical implications for research on expectations, motivation, competition, and self-verification.
... Moore, Oesch, and Zietsma (2007) found that potential market entrants focused more heavily on information about themselves than competitors' entry decisions. Scholars have found that individuals are more likely to feel confident when they see themselves as highly capable, regardless of how strong their competitors are (Camerer and Lovallo 1999;Radzevick and Moore 2008). We would theorize that entrepreneurs rely more heavily on the information of their own firm's capabilities than on market information or competitors' strengths when making a market entry decision. ...
... This phenomenon is referred to as myopic decision making (e. g., Moore, Oesch, and Zietsma 2007;Wu and Knott 2006;Radzevick and Moore 2008). In this article, we attempt to describe possible mechanisms leading to bias related to three types of evaluation to show how entrepreneurs actually make market entry decisions. ...
... This suggests that scholars may wish to consider an entrepreneur's cognitive bias as it relates to both internal and external factors. In prior studies, overconfidence and biased judgments under uncertainty have been seen as a key psychological explanation for the high failure of new ventures (Kahneman, Slovic, and Tversky 1982;Radzevick and Moore 2008;Simon, Houghton, and Aquino 2000;Windschitl et al. 2008;Camerer and Lovallo 1999). People may lack confidence or be too confident in assessing their own abilities (Moore and Healy 2008). ...
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Research in entrepreneurship decision making assumes that entrepreneurs use a relatively distinct decision-making process when it comes to market entry. Building on a biased comparative-judgment-formation framework and egocentrism theory, this article theorizes a model of entrepreneurs’ egocentric market entry decisions. Specifically, we illustrate how entrepreneurs may be vulnerable to cognitive biases in the three stages of decision making: information acquisition, evaluation, and comparative judgment formation. This article contributes to understanding the high failure rate of new ventures by suggesting that egocentric and myopic decision-making processes on the part of entrepreneurs may impede rational decision making.
... Hope Over Experience: Desirability and the Persistence of Optimism Samuel Johnson famously proclaimed that a second marriage reflects " the triumph of hope over experience" (Boswell, 1791). Researchers have amply documented the apparent triumph of hope: People are excessively optimistic about marriage (Baker & Emery, 1993), work (Hoch, 1985), sports (Radzevick & Moore, 2008), health (Weinstein, 1980) and life expectancy (Puri & Robinson, 2007). Yet, it remains unclear whether (1) hope triumphs over experience – do people persist in making optimistic judgments as they acquire feedback? ...
... of the season. This effect is still significant, and in fact only slightly reduced, after adding our full array of control variables, β = 0.164, z(385) = 10.1, p < .01. That optimistic bias was robust even after controlling for team strength indicates that the biasing effect of desirability was not a simple artifact of fans favoring good teams (cf. Radzevick & Moore, 2008). Similarly, our controls for team familiarity indicate that optimism is uniquely related to the desirability of a team, and not merely to fans' greater familiarity with their favorites (cf. Kilka & Weber, 2000). Next we dropped the favorite-team designation, using instead the pre-season liking ratings participants assigned to each team ...
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Many important decisions hinge on expectations of future outcomes. Decisions about health, investments, and relationships all depend on predictions of the future. These expectations are often optimistic: People frequently believe that their preferred outcomes are more likely than is merited. Yet it is unclear whether optimism persists with experience and, surprisingly, whether optimism is truly caused by desire. These are important questions because life's most consequential decisions often feature both strong preferences and the opportunity to learn. We investigated these questions by collecting football predictions from National Football League fans during each week of the 2008 season. Despite accuracy incentives and extensive feedback, predictions about preferred teams remained optimistically biased through the entire season. Optimism was as strong after 4 months as it was after 4 weeks. We exploited variation in preferences and matchups to show that desirability fueled this optimistic bias.
... Samuel Johnson famously proclaimed that a second marriage reflects "the triumph of hope over experience" (Boswell, 1791). Researchers have amply documented the apparent triumph of hope: People are excessively optimistic about marriage (Baker & Emery, 1993), work (Hoch, 1985), sports (Radzevick & Moore, 2008), health (Weinstein, 1980) and life expectancy (Puri & Robinson, 2007). Yet, it remains unclear whether (1) hope triumphs over experience -do people persist in making optimistic judgments as they acquire feedback? ...
... That optimistic bias was robust even after controlling for team strength indicates that the biasing effect of desirability was not a simple artifact of fans favoring good teams (cf. Radzevick & Moore, 2008). Similarly, our controls for team familiarity indicate that optimism is uniquely related to the desirability of a team, and not merely to fans' greater familiarity with their favorites (cf. ...
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Many important decisions hinge on expectations of future outcomes. Decisions about health, investments, and relationships all depend on predictions of the future. These expectations are often optimistic: People frequently believe that their preferred outcomes are more likely than is merited. Yet it is unclear whether optimism persists with experience and, surprisingly, whether optimism is truly caused by desire. These are important questions because life’s most consequential decisions often feature both strong preferences and the opportunity to learn. We investigated these questions by collecting football predictions from National Football League fans during each week of the 2008 season. Despite accuracy incentives and extensive feedback, predictions about preferred teams remained optimistically biased through the entire season. Optimism was as strong after 4 months as it was after 4 weeks. We exploited variation in preferences and matchups to show that desirability fueled this optimistic bias.
... 1 E-mail address: z.murad@surrey.ac.uk. 1 Cain et al. (2015) further show that overconfidence in simple and underconfidence in difficult tasks can explain current trends in market entry behaviour in M&C attribute this difference in entry rates to asymmetric information one possesses about self versus others. Providing explicit information on competitors' performance demonstrably decreases competitive entry failures in foregone profits and direct losses (Radzevick and Moore, 2008;Ewers, 2012). In this paper, we investigate the possibility of group discussion providing implicit information in market entry games with simple and difficult quiz tasks. ...
... A recent research agenda in business and economics literature has investigated the effects of incorrect beliefs on individuals' decisions to enter excessively into competitions with easy and avoid competitions with difficult tasks. Additional information on competitors' performances in turn has been shown to correct those beliefs and decrease competitive entry failures (Radzevick and Moore, 2008;Ewers, 2012). As a novel research question we propose that group discussion provides implicit information channel leading to more strategic market entry decisions. ...
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We investigate the possibility of group discussion serving as an implicit information channel to eliminate biased entry decisions into experimental markets. We find that groups are more informed than individuals in their beliefs. Nevertheless they make similarly biased market entry decisions failing to learn from feedback and repetition.
... They contend that people struggle to respond adequately to the combination of game rules and other participants' decisions when making their own decisions. In a related vein, Moore and colleagues have found that with regard to trivia quizzes (Moore & Kim, 2003), sports game predictions (Radzevick & Moore, 2008), negotiations (Moore, 2004a(Moore, , 2004b(Moore, , 2005, and market-entry decisions (Moore et al., 2007), people often 1 One promising approach to the question of individual differences in negotiation involves more proximal explanatory factors. Elfenbein et al. (2010) examined the negotiation process and found process features that were associated with outcomes in the same negotiation: information sharing, flow of offers, dominance, lack of affiliative behavior, and accuracy of understanding. ...
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Lay intuition suggests that some people are better than others at strategic social interaction. Nonetheless, identifying reliable predictors of individual differences in negotiation performance has been difficult. In this investigation, we hypothesized that an individuals' skill in understanding the structure of socially interdependent situations, and in best responding to others' likely behavior in such situations, should predict their negotiation performance. We adapted existing and novel social guessing games to measure such skills. In a series of studies with students and business executives in Russia and Sweden, performance in the guessing games predicted better individual outcomes and better joint outcomes in dyadic negotiations. Guessing‐game performance remained predictive of both outcomes after proxies for general mental ability were controlled for. Potential applications to larger‐scale phenomena are discussed.
... Assuming again 11. For example, see Moore, Oesch, and Zietsma (2007), and Radzevick and Moore (2008), who find that subjects ignore their opponents' decisions even in situations where those decisions should be highly salient. ...
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... Abundant experimental and survey-based evidence has shown that people exhibit competition neglect, that is, that they tend to choose actions which maximize profits in the absence of competition, but which do not necessarily do so in its presence. Moore and Cain (2004) find that too many subjects choose to compete on easy tasks and too few on difficult ones (see also Radzevick & Moore, 2008). Camerer and Lovallo (1999) find that subjects do not adjust behavior sufficiently when competing against self-selected vs. nonself-selected competitors. ...
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Do firms neglect competition when making entry decisions? This paper addresses this question analyzing the time of day at which eBay sellers set their auctions to end. Consistent with competition neglect, it is found that (i) a disproportionate share of auctions end during peak bidding hours, (ii) such hours exhibit lower selling rates and prices, and (iii) peak listing is more prevalent among sellers likely to have chosen ending time strategically, suggesting disproportionate entry is a mistake driven by bounded rationality rather than mindlessness. The results highlight the importance for marketing researchers of assessing rather than assuming the rationality of firm behavior.
... This application of behavioral decision research soon developed into a search for additional biases that might be created by the competitive nature of negotiations. Soon, we learned that negotiators tend to assume that negotiation tasks are fixed-sum (the mythical fixed-pie), to miss opportunities for mutually beneficial tradeoffs between the parties (Bazerman, Magliozzi, and Neale 1985); to escalate commitment to a previously selected course of action when it is no longer the most reasonable alternative (Bazerman and Neale 1983); to overlook valuable, available information by failing to consider the opponent's cognitive perspective (Samuelson and Bazerman 1985; Bazerman and Carroll 1987) and strengths and weaknesses (Radzevick and Moore 2008), and to retroactively devalue any concession made by one's opponent (Ross and Stillenger 1991). This new perspective, which developed Raiffa's analytic structure through the lens of behavioral decision research, prompted a large body of research that integrated analytic structures with descriptively accurate models of human cognition. ...
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Over the past quarter century, the decision-analytic approach to negotiation has seen the development of a better dialogue between the descriptive and the prescriptive and has also attracted the interest of both academics and practitioners. Researchers have built upon the work in behavioral decision theory, examining the ways in which negotiators may deviate from rationality. The 1990s brought a renewed interest in social factors, as work on social relationships, egocentrism, attribution and construal processes, and motivated illusions was incorporated into our understanding of negotiations. Several promising areas of research have emerged in recent years, drawing from other disciplines and informing the field of negotiations, including work on the influence of ethics, emotions, intuition, and training.
... Using hindsight, decision makers seek to justify what they did and thus rationalize any previous decision (is this the so-called hindsight bias). Radzevick and Moore (2008) contend that people are more confident when their own side is strong and this feeling is independent of the strength of the competition. They link this effect to the fact that people have better information about their own side than the other side. ...
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The accepted approach to capital budgeting leaves decision makers without appropriate guidance because it ignores the cognitive, organizational, and institutional dimensions of their decision-making process. This approach is based upon the unrealistic assumptions of neoclassical finance, where investors are assumed to be (or behave as if they were) fully rational and informed. This chapter explores the opportunity to analyze capital budgeting decisions within a more realistic context. To reach such an objective, it summarizes alternative perspectives addressing these specific dimensions: the cognitive, the organizational, and the institutional. All together, such dimensions suggest generalizing the current approach based on discounted cash flow analysis to provide decision makers with alternative ways to assess investment opportunities under more realistic approaches driven by behavioral and institutional finance.
... Camerer and Lovallo (1999) argue that when competing on skills, agents will be insufficiently sensitive to the quality of competition and amount of risk. In addition, Radzevick and Moore (2008) suggest that firms need to invest in intelligence regarding competitors, and that to succeed new entrants ought to devote as much time to understanding their future competitors as they do to understanding their own capabilities. Being able to correctly identify the causes of positive or negative performance outcomes means being able to learn from past experience by interpreting signals accurately, taking the most appropriate corrective strategies, and, ultimately, enhancing future firm performance. ...
... Such focused comparisons affect numerous judgment contexts. For example, sports fans are more certain their own team will succeed when the team is strong, regardless of the strength of the competition (Radzevick & Moore, 2008). Negotiators predict that final deadlines Comparative processes Chambers and Windschitl (2004) describe a useful model of comparative judgment in which focused comparison mechanisms operate (see Fig. 1). ...
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Three studies investigate the psychology of comparative judgment, examining the circumstances under which judgments tend to concentrate disproportionately on one of the two elements that underlie the comparison (i.e., focused comparisons). We examine these tendencies at the judgment formation and information retrieval stages by examining judgment content as well as the speed and efficiency with which people make comparisons. The results replicate prior findings of differential weighting, indicating that focusing occurs in the formation stage of comparative judgments. However, focusing is absent in the reaction time data, suggesting that both elements of the comparison are equally accessible when individuals retrieve comparison-relevant information. These findings clarify the process by which people arrive at comparative judgments and demonstrate precisely when focused comparisons occur.
... J. L. Harris, Corner, & Hahn, 2009). At the same time, previous observations of the wishful thinking effect outside the laboratory (e.g., Babad & Katz, 1991) seem well explained as "an unbiased evaluation of a biased body of evidence" (Bar-Hillel & Budescu, 1995, p. 100; see also, e.g., Denrell & Le Mens, 2007;Fiedler, 2000;Gordon, Franklin, & Beck, 2005;Kunda, 1990;Morlock, 1967;Radzevick & Moore, 2008;Slovic, 1966). For example, Bar-Hillel et al. (2008) observed potential evidence of wishful thinking in the prediction of results in the 2002 and 2006 football World Cups. ...
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A robust finding in social psychology is that people judge negative events as less likely to happen to themselves than to the average person, a behavior interpreted as showing that people are "unrealistically optimistic" in their judgments of risk concerning future life events. However, we demonstrate how unbiased responses can result in data patterns commonly interpreted as indicative of optimism for purely statistical reasons. Specifically, we show how extant data from unrealistic optimism studies investigating people's comparative risk judgments are plagued by the statistical consequences of sampling constraints and the response scales used, in combination with the comparative rarity of truly negative events. We conclude that the presence of such statistical artifacts raises questions over the very existence of an optimistic bias about risk and implies that to the extent that such a bias exists, we know considerably less about its magnitude, mechanisms, and moderators than previously assumed.
... external circumstances) factors that might affect the performance of the target's competitors are barely taken into consideration-if at all. That is, when making predictions of relative standing (Klar & Giladi, 1997;Kruger, 1999;Kruger & Burrus, 2004) or when predicting the outcome of explicit competitions (Moore, 2005;Moore & Kim, 2003;Radzevick & Moore, 2008;Windschitl et al., 2003), people often focus exclusively on a target's personal attributes and all but ignore its competitors' capabilities. ...
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In eight studies, we document an upward mobility bias, or a tendency to predict that a rise in rankings is more likely than a decline. This asymmetry was observed in predictions of classroom performance, NBA and NFL standings, business school rankings, and employee performance rankings. The bias was found for entities people care about and want to see improve their standing, as well as entities in which people are not invested. It appears to result from people's tendency to give considerable weight to a focal agent's intentions and motivation, but to give less weight to the intentions of competitors and other factors that would thwart the focal agent's improvement. We show that this bias is most pronounced for implicit incremental theorists, who believe that performance is malleable (and hence assign more weight to intentions and effort). We discuss implications of this asymmetry for decision making and for an understanding of the underdog bias. Copyright © 2015 John Wiley & Sons, Ltd.
... There have been observations of the "wishful thinking effect" outside the laboratory (e.g., Babad & Katz, 1991;Simmons & Massey, 2012). These, however, seem well explained as "an unbiased evaluation of a biased body of evidence" (Bar-Hillel & Budescu, 1995, p. 100, see also Gordon, Franklin, & Beck, 2005;Kunda, 1990;Morlock, 1967;Radzevick & Moore, 2008;Slovic, 1966). For example, Bar-Hillel et al. (2008) observed potential evidence of wishful thinking in the prediction of results in the 2002 and 2006 football World Cups. ...
Chapter
In this chapter, we provide a historical overview of research on bias in human cognition, ranging from early work in psychology through the detailed, quantitative examinations of belief revision in the 1960s, the Heuristic and Biases program initiated by Kahneman and Tversky, and bias focused research in personality and social psychology. Different notions of “bias” are identified and compared with the notion of bias in statistics, machine learning, and signal detection theory. Comparison with normative models then forms the basis for a critical look at the evidence that people succumb to motivated reasoning aimed at enabling them “to believe what they want to believe.”
... We suggest a new framework for understanding the upward mobility bias in the absence of intention, motivation, or effort. Based on prior work on focalism (Klar & Giladi, 1997;Kruger, 1999;Kruger & Burrus, 2004;Moore, 2005;Moore & Kim, 2003;Radzevick & Moore, 2008;Windschitl et al., 2003), we have argued that the tendency to overweight a focal target in judgment leads to the belief that a rise in ranking is more likely than a decline. However, it is important to note that focalism by itself cannot account for the upward mobility bias. ...
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... Abundant experimental and survey-based evidence has shown that people exhibit competition neglect, that is, that they tend to choose actions which maximize profits in the absence of competition, but which do not necessarily do so in its presence. Moore and Cain (2004) find that too many subjects choose to compete on easy tasks and too few on difficult ones (see also Radzevick & Moore, 2008). Camerer and Lovallo (1999) find that subjects do not adjust behavior sufficiently when competing against self-selected vs. non- self-selected competitors. ...
Article
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... judgments, people have more knowledge about the self than about others (i.e., information about the former is more available, accessible, or both). Previous work suggests that this knowledge differential contributes to why self-relevant information is given more weight in the judgments process (Kruger, Windschitl, Burrus, Fessel, & Chambers, 2008;Moore, 2007;Radzevick & Moore, 2008;Rose, Windschitl, & Smith, 2012;Windschitl, Conybeare, et al., 2008). To explain this in RSJF, we assume that the high accessibility of information about the self is likely to produce strong spontaneous impressions, and the relative inaccessibility of information about others does little to trigger its consideration in the controlled comparison step. ...
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Judgments of direct comparisons, probabilities, proportions, and ranks can all be considered referent-specific judgments, for which a good estimate requires a target to be compared against a referent(s). This paper presents a Referent-Specific Judgment Framework (RSJF) to organize and integrate over- and under-estimation biases commonly associated with these judgments. RSJF assumes a dual-process structure in which one key source of bias can arise from spontaneous comparisons whose input—unless offset by a controlled process—can yield an underweighting of evidence about referents. Another key source of bias is the misaggregation of evidence associated with multiple referents. Two studies tested RSJF predictions about similarities and differences in patterns of bias in comparative versus probability judgments. As expected, there was similarity in patterns tied to misweighting and differences in patterns tied to misaggregation. The findings support the utility of RSJF for organizing and advancing the study of referent-specific judgments.
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Entrepreneurs are often described as overconfident (or at least very confident), even when entering difficult markets. However, recent laboratory findings suggest that difficult tasks tend to produce underconfidence. How do entrepreneurs maintain confidence in difficult tasks? Our two laboratory experiments and one archival study reconcile the literature by distinguishing types of overconfidence and identifying what type is most prominent in each type of task. Furthermore, we critically examine the notion that ‘overconfidence’ explains excess market entry: we find that entry into different markets is not driven by confidence in one's own absolute skill, but by confidence in one's skill relative to that of others. Finally, we consider whether overconfidence in relative skill is driven by neglecting competitors or by systematic errors made when considering them. Copyright © 2013 John Wiley & Sons, Ltd.
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We present evidence from laboratory experiments showing that individuals are “last-place averse.” Participants choose gambles with the potential to move them out of last place that they reject when randomly placed in other parts of the distribution. In modified dictator games, participants randomly placed in second-to-last place are the most likely to give money to the person one rank above them instead of the person one rank below. Last-place aversion suggests that low-income individuals might oppose redistribution because it could differentially help the group just beneath them. Using survey data, we show that individuals making just above the minimum wage are the most likely to oppose its increase. Similarly, in the General Social Survey, those above poverty but below median income support redistribution significantly less than their background characteristics would predict. JEL Codes: H23, D31, C91.
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Formulating expectations of others’ behaviour depends on understanding these individuals, groups or organizations. This form of perspective-taking is a cognitively demanding task that people routinely fail to perform perfectly. Perhaps the most common error is insufficient consideration of others or a failure to understand their perspectives. This error leads to a number of predictable biases, including false consensus, false uniqueness, better-than-average beliefs and (under some circumstances) worse-than-average beliefs. These errors produce systematic biases, such as entering competitions too frequently.
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In this chapter, we provide a historical overview of research on bias in human cognition, ranging from early work in psychology through the detailed, quantitative examinations of belief revision in the 1960s, the Heuristic and Biases program initiated by Kahneman and Tversky, and bias focused research in personality and social psychology. Different notions of “bias” are identified and compared with the notion of bias in statistics, machine learning, and signal detection theory. Comparison with normative models then forms the basis for a critical look at the evidence that people succumb to moti- vated reasoning aimed at enabling them “to believe what they want to believe.”
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Conducted 5 experiments to assess biases in availability of information in memory and attributions of responsibility for the actions and decisions that occurred during a previous group interaction. The S populations sampled included naturally occurring discussion groups (of undergraduates), 37 married couples, 74 female and 84 male players on intercollegiate basketball teams, and groups of undergraduates assembled in the laboratory. Data provide consistent evidence for egocentric biases in availability and attribution: The S's own contributions to a joint product were more readily available, i.e., more frequently and easily recalled, and Ss accepted more responsibility for a group product than other participants attributed to them. In addition, statements attributed to the self were recalled more accurately and the availability bias was attenuated, though not eliminated, when the group product was negatively evaluated. When another S's contributions were made more available to the S via a selective retrieval process, this S allocated correspondingly more responsibility for the group decisions to the coparticipant. The determinants and pervasiveness of the egocentric biases are considered. (27 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
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Reviews 55 studies in which self-evaluations of ability were compared with measures of performance to show a low mean validity coefficient (mean r = .29) with high variability ( SD = .25). A meta-analysis by the procedures of J. E. Hunter et al (1982) calculated sample-size weighted estimates of –- r and SDr and estimated the appropriate adjustments of these values for sampling error and unreliability. Among person variables, high intelligence, high achievement status, and internal locus of control were associated with more accurate evaluations. Much of the variability in the validity coefficients ( R = .64) could be accounted for by 9 specific conditions of measurement, notably (a) the rater's expectation that the self-evaluation would be compared with criterion measures, (b) the rater's previous experience with self-evaluation, (c) instructions guaranteeing anonymity of the self-evaluation, and (d) self-evaluation instructions emphasizing comparison with others. It is hypothesized that conditions increasing self-awareness would increase the validity of self-evaluation. (84 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
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When people are asked to compare their abilities to those of their peers, they predominantly provide self-serving assessments that appear objectively indefensible. This article proposes that such assessments occur because the meaning of most characteristics is ambiguous, which allows people to use self-serving trail definitions when providing self-evaluations. Studies 1 and 2 revealed that people provide self-serving assessments to the extent that the trait is ambiguous, that is, to the extent that it can describe a wide variety of behaviors. Study 3 more directly implicated ambiguity in these apraisals. As the number of criteria that Ss could use in their evaluations increased, Ss endorsed both positive and negative characteristics as self-descriptive to a greater degree. Study 4 demonstrated that the evidence and criteria that people use in self-evaluations is idiosyncratic. Asking Ss explicitly to list the evidence and criteria they considered before providing self-evaluations did not influence their self-appraisals. However, requiring Ss to evaluate themselves using a list generated by another individual caused them to lower their self-appraisals. Discussion centers on the normative status of these self-serving appraisals, and on potential consequences for social judgment in general.
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Research in which people compare themselves with an average peer has consistently shown that people evaluate themselves more favorably than they evaluate others. Seven studies were conducted to demonstrate that the magnitude of this better-than-average effect depends on the level of abstraction in the comparison. These studies showed that people were less biased when they compared themselves with an individuated target than when they compared themselves with a nonindividuated target, namely, the average college student. The better-than-average effect was reduced more when the observer had personal contact with the comparison target than when no personal contact was established. Differences in the magnitude of the better-than-average effect could not be attributed to the contemporaneous nature of the target's presentation, communication from the target, perceptual vividness, implied evaluation, or perceptions of similarity.
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Nearly all industries exhibit geographic concentration. Most theories of the location of industry explain the persistence of these production centers as the result of economic efficiency. This article argues in-stead that heterogeneity in entrepreneurial opportunities, rather than differential performance, maintains geographic concentration. En-trepreneurs need exposure to existing organizations in the industry to acquire tacit knowledge, obtain important social ties, and build self-confidence. Thus, the current geographic distribution of pro-duction places important constraints on entrepreneurial activity. Due to these constraints, new foundings tend to reify the existing geographic distribution of production. Empirical evidence from the shoe industry supports this thesis.
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This paper documents egocentric biases in market entry decisions. We demonstrate self-focused explanations for entry decisions made by three groups of participants: actual entrepreneurs (founders), working professionals who considered starting their own firms but did not (non-founders), and participants in a market entry experiment. Potential entrants based their decision to enter primarily on evaluations of their own competence (or incompetence) and paid relatively little attention to the strength of the competition. Our results suggest that excess entrepreneurial entry is more complicated than simple overconfidence, and can help explain notable patterns in entrepreneurial entry.
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The first part of this paper traces a short history of the psychological study of negotiation. Although negotiation was an active research topic within social psychology in the 1960s and 1970s, in the 1980s, the behavioral decision perspective dominated. The 1990s has witnessed a rebirth of social factors in the psychological study of negotiation, including social relationships, egocentrism, motivated illusions, and emotion. The second part of this paper reviews five emerging research areas, each of which provides useful insight into how negotiators subjectively understand the negotiation: (a) mental models in negotiation; (b) how concerns of ethics, fairness, and values define the rules of the game being played; (c) how the selection of a communication medium impacts the way the game is played; (d) how cross-cultural issues in perception and behavior affect the negotiation game; and (e) how negotiators organize and simplify their understandings of the negotiation game when more than two actors are involved.
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We examine predictions and judgments of confidence based on one-sided evidence. Some subjects saw arguments for only one side of a legal dispute while other subjects (called 'jurors') saw arguments for both sides. Subjects predicted the number of jurors who favored the plaintiff in each case. Subjects who saw only one side made predictions that were biased in favor of that side. Furthermore, they were more confident but generally less accurate than subjects who saw both sides. The results indicate that people do not compensate sufficiently for missing information even when it is painfully obvious that the information available to them is incomplete. A simple manipulation that required subjects to evaluate the relative strength of the opponent's side greatly reduced the tendency to under- weigh missing evidence.
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In this article, a cognitive approach to the problem of competitor definition is outlined, which begins with a discussion of the information-processing demands implied by current models of competitive strategy. How decision makers simplify the competitive environment by using a mental model of competitive groups is then discussed. Finally, the implications of a cognitive approach for the classifying organizations and organizational adaptation are commented on.
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Michael Porter presents a comprehensive structural framework and analytical techniques to help a firm to analyze its industry and evolution, understand its competitors and its own position, and translate this understanding into a competitive strategy to allow the firm to compete more effectively to strengthen its market position. The introduction reviews a classic approach to strategy formulation, one that comprises a combination of ends and means (policies), factors that limit what a company can accomplish, tests of consistency, and an approach for developing competitive strategy. A competitive strategy articulates a firm's goals, how it will compete, and its policies for achieving those goals. Competitive advantage is defined in terms of cost and differentiation while linking it to profitability. Part I, "General Analytical Techniques," provides a general framework for analyzing the structure of an industry and understanding the underlying forces of competition (and hence profitability). Five competitive forces act on an industry: (1) threat of new entrants, (2) intensity of rivalry among existing firms, (3) threat of substitute products or services, (4) bargaining power of buyers, and (5) bargaining power of suppliers. Looking at industry structure provides a way to consider how value is created and divided among existing and potential industry participants. One competitive force always captures essential issues in the division of value.There are three generic competitive strategies for coping with the five competitive forces: (1) overall cost leadership, (2) differentiation, and (3) focus. There are risks with each strategy. A firm without a strategy is "stuck in the middle." This framework for examining competition transcends particular industry, technology, or management theories. Building on this framework, techniques are presented for industry forecasting, analysis of competitors, predicting their behavior, and building a response profile. Essential for a competitive strategy are techniques for recognizing and accurately reading market signals. Implications of structural analysis for buyer selection and purchasing strategy are presented. Game theory provides concepts for responding to competitive moves. Using the concept of strategic groups, structural analysis can also explain differences in firm performance (profitability), provide a guide for competitive strategy, and predict industry evolution. Part II, "Generic Industry Environments," shows how firms can use the analytical framework to develop a competitive strategy in industry environments, which reflect differences in industry concentration, state of industry maturity, and exposure to international competition. These environments determine a business's competitive strategic context, available alternatives, and common strategic errors. Five generic industry environments are examined: fragmented industries (where level of industrial concentration is low), emerging industries, transition to industry maturity, declining industries, and global industries. In each, the crucial aspects of industry structure, key strategic issues, characteristic strategic alternatives (including divestment), and strategic pitfalls are identified. Part III, "Strategic Decisions," draws on the analytical framework to examine important types of strategic decisions confronting firms that compete in a single industry: vertical integration, major capacity expansion, and new business entry. Additional use of economic theory and administrative consideration of management and motivation helps a company to make key decisions, and gives insight into how competitors, customers, suppliers, and potential entrants might make them. Appendix A discusses use of techniques for portfolio analysis applied to competitor analysis. Appendix B provides approaches to conducting an industry study, including sources of field and published dat
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In this paper we argue that market boundaries are socially constructed around a collective cognitive model that summarizes typical organizational forms within an industry. This model is produced when firms observe each other's actions and define unique product positions in relation to each other. Our study examines the question of how firms define a reference group of rivals when market cues are ambiguous and interorganizational variety is high and identifies the industry model underlying rivalry among Scottish knitwear producers. The data suggest that a six-category model of organizational forms best describes the common sense of competition in the industry and that an ensemble of attributes involving size, technology, product style, and geographic location forms the foundation for this ordering. The results also show how this industry model is reproduced within the rivalry network structuring imperfect competition in the industry.
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Prior work has found that when people compare themselves with others they egocentrically focus on their own strengths and achievements more than on the (equally relevant) strengths and achievements of the comparison group. As a consequence, people tend to overestimate their comparative standing when absolute standing is high and underestimate their comparative standing when absolute standing is low. The present research investigated a rational discounting explanation of this bias—namely, that people weight the target of the comparison (the self) more than the referent of the comparison (others) because they typically have more knowledge about the former than the latter. In three studies, we found that the tendency to focus on the target in social comparisons—and the over and underestimation of relative standing that tendency engenders—was reduced (but not eliminated) as people’s knowledge about the comparison group increased. These results suggest that there may be a rational side to egocentrism in social comparisons.
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Studies consistently find regions dense in concentrations of similar firms to be fecund sources of new firms of the same kind. This pattern persists even in industries with negative returns to geographic concentration. Why do these patterns persist? On the one hand, social networks may constrain entrepreneurs’ opportunities, making it difficult to mobilize resources in more attractive locations. On the other hand, nascent entrepreneurs may systematically misperceive opportunities in such a way as to lead them to continue founding attempts in overcrowded regions. To distinguish between these two processes, we analyze a unique set of data on television stations that contains information on both attempts to start new stations, as well as successful foundings. Our exploratory analysis suggests that nascent entrepreneurs do consistently misinterpret information related to population dynamics. These patterns could easily contribute both to industrial agglomeration and to the fragility of Red Queen dynamics. We discuss the implications of these results both for future research and for public policy.
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1,000 male spectators (ranging in age from adolescence to adulthood) at an Israeli football stadium were asked to predict game outcomes before games and during the halftime breaks. Fans demonstrated overwhelming wishful thinking in their pregame predictions, and wishful thinking was positively correlated with self-defined levels of fanhood and preference. Half of the Ss were given an objectivity instruction designed to increase validity and reduce wishful thinking. Following this instruction, wishful thinking was reduced pregame but increased at halftime. This finding is discussed in terms of psychological reactance. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
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Wishful thinking (WT)—defined as predicting a more favorable outcome for a preferred team—was investigated in soccer stadia and betting stations in Israel. High levels of WT were found in all contexts investigated. As hypothesized, the intensity of WT varied between contexts as a function of the “legitimacy” of emotionalism and subjectivity, and within each context as a function of self-defined levels of fanhood and preference. An explicit instruction to be objective did not reduce WT in predicting game outcomes. Paid betting forms represented an ecologically valid voluntary behavior most contradictory of wishful thinking, since bettors are strongly motivated to be objective and impartial. The results showed that fans could not overcome their wishful thinking, betting emotionally and against their financial interest.
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The Theory of Industrial Organization is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level. Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas while working at an intuitive level. To aid students at different levels, each chapter is divided into a main text and supplementary section containing more advanced material. Each chapter opens with elementary models and builds on this base to incorporate current research in a coherent synthesis. Tirole begins with a background discussion of the theory of the firm. In part I he develops the modern theory of monopoly, addressing single product and multi product pricing, static and intertemporal price discrimination, quality choice, reputation, and vertical restraints. In part II, Tirole takes up strategic interaction between firms, starting with a novel treatment of the Bertrand-Cournot interdependent pricing problem. He studies how capacity constraints, repeated interaction, product positioning, advertising, and asymmetric information affect competition or tacit collusion. He then develops topics having to do with long term competition, including barriers to entry, contestability, exit, and research and development. He concludes with a "game theory user's manual" and a section of review exercises.
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Decision makers have a strong tendency to consider problems as unique. They isolate the current choice from future opportunities and neglect the statistics of the past in evaluating current plans. Overly cautious attitudes to risk result from a failure to appreciate the effects of statistical aggregation in mitigating relative risk. Overly optimistic forecasts result from the adoption of an inside view of the problem, which anchors predictions on plans and scenarios. The conflicting biases are documented in psychological research. Possible implications for decision making in organizations are examined.
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Recent research on bilateral bargaining behavior under uncertainty has found that, under asymmetric information, negotiators develop inferior bidding strategies because they fail to incorporate valuable information about the decisions of their opponents. This results in negative profits, or the “winner's curse.” The present study provided subjects multiple opportunities for feedback as well as experience in both negotiation roles. Neither learning opportunity eliminates the winner's curse.
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People are often called on to make an assessment of the relative likelihood of events (e.g., which of two investments is more likely to outperform the market?) and their complements (which of the two investments is more likely to perform no better than the market?). Probability theory assumes that belief orderings over events and their complements should mirror each other (i.e., P(A) ≥ P(B) iff P (not-A) ≤ P(not-B)). This principle is violated in several surveys in which we asked people to assess the relative likelihood of familiar versus unfamiliar events. In particular, respondents are biased to view more familiar events (and their complements) as more likely than less familiar events (and their complements). Similarly, we observe that subjects are biased to view less familiar events (and their complements) as less likely than more familiar events (and their complements). Further studies demonstrate that the familiarity bias is less pronounced among subjects who are asked to judge the probability of each event rather than which event is more likely. Moreover, a greater proportion of subjects rate the more familiar event as more likely than assign a higher probability to that event. These patterns can be construed as belief reversals, analogous to the preference reversal phenomenon in decision making. The data are consistent with a contingent weighting model in which the process of judging relative likelihood biases attention toward evidence supporting the target hypothesis (and away from evidence supporting its complement). Because it is easier to recruit evidence supporting familiar events than unfamiliar events, this skewed attention causes both familiar events and their complements to be judged more likely, on average, than unfamiliar events and their complements.
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Does CEO overconfidence help to explain merger decisions? Overconfident CEOs over-estimate their ability to generate returns. As a result, they overpay for target companies and undertake value-destroying mergers. The effects are strongest if they have access to internal financing. We test these predictions using two proxies for overconfidence: CEOs’ personal over-investment in their company and their press portrayal. We find that the odds of making an acquisition are 65% higher if the CEO is classified as overconfident. The effect is largest if the merger is diversifying and does not require external financing. The market reaction at merger announcement (-90 basis points) is significantly more negative than for non-overconfident CEOs (-12 basis points). We consider alternative interpretations including inside information, signaling, and risk tolerance.
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When court trials (or arbitration) are the mechanisms for resolving bargaining impasses, the costs and risks associated with third-party intervention should motivate settlement (Henry Farber and Harry Katz, 1979). However, empirical evidence suggests that impasses and inefficient settlements are common in the legal system and in contract negotiations. For example, one study of asbestos suits found that only 37 cents of every dollar spent by both sides end up in the plaintiffs' hands (James Kakalik et al., 1983).
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This study examines the role of a chief executive officer's hubris, or exaggerated self-confidence, in explaining the large size of some premiums paid for acquisitions. In a sample of 106 large acquisitions, we found that four indicators of CEO hubris are highly associated with the size of premiums paid: the acquiring company's recent performance, recent media praise for the CEO, a measure of the CEO's self-importance, and a composite factor of these three variables. The relationship between CEO hubris and premiums is further strengthened when board vigilance is lacking - when the board has a high proportion of inside directors and when the CEO is also the board chair. On average, we found losses in acquiring firms' shareholder wealth following an acquisition, and the greater the CEO hubris and acquisition premiums, the greater the shareholder losses. Thus, CEO hubris has substantial practical consequences, in addition to having potentially great theoretical significance to observers of strategic behavior.
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"To appear in L.L. Cummings and B.M. Staw (Eds.), Research in Organizational Behavior, Volume 9, 1987."
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The results of four studies suggest that people tend to generate and evaluate causal theories in a self-serving manner. They generate theories that view their own attributes as more predictive of desirable outcomes, and they are reluctant to believe in theories relating their own attributes to undesirable events. As a consequence, people tend to hold theories that are consistent with the optimistic belief that good things will happen to them and bad things will not. I argue that these self-serving biases are best explained as resulting from cognitive processes guided by motivation because they do not occur in the absence of motivational pressures.
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We examine the hypothesis that sentimental bettors can affect the path of prices in football betting markets. We hypothesize that sentimental traders follow the advice of false experts, believe excessively in momentum strategies, bet excessively on teams that are well known and covered in the media. We generate proxies for these sources of sentiment and show that point spreads move predictably over the course of the week, partially in response to variables known prior to the opening of betting. We show that a betting strategy of betting against the predicted movement in the point spread is borderline profitable. Copyright 1999 by University of Chicago Press.
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We hypothesized that people motivated to believe that they possess a given trait search for autobiographical memories that reflect that trait, so as to justify their desired self-view. We led subjects to believe that either extraversion or introversion was desirable, and obtained convergent evidence from open-ended memory-listing tasks as well as from reaction-time tasks measuring the speed with which memories could be generated that this manipulation enhanced the accessibility of memories reflecting the desired trait. If people rely on their memories to construct desired self-concepts, motivated changes in self-concepts should be constrained by the content of available memories. Our final study demonstrates such constraints.
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It is proposed that motivation may affect reasoning through reliance on a biased set of cognitive processes--that is, strategies for accessing, constructing, and evaluating beliefs. The motivation to be accurate enhances use of those beliefs and strategies that are considered most appropriate, whereas the motivation to arrive at particular conclusions enhances use of those that are considered most likely to yield the desired conclusion. There is considerable evidence that people are more likely to arrive at conclusions that they want to arrive at, but their ability to do so is constrained by their ability to construct seemingly reasonable justifications for these conclusions. These ideas can account for a wide variety of research concerned with motivated reasoning.