Human behavior and decision-making

Human behavior and decision-making is a featured research topic at Harvard Business School.
 
Ever since their origins about three decades ago, the Behavioral Science areas of economics, ethics and managerial psychology have been rapidly evolving. In the 1980's and 1990's, early work by Max Bazerman in judgment and negotiation, Matthew Rabin in behavioral economics, and James Sebenius in negotiations was instrumental in shaping research on Human Behavior & Decision-Making. Today, our research focuses on individual and interactive judgment and decision making and explores the role of personal bias, cognition and learning, time, perception, ethics and morality, and emotion.  
  1. The Value of Corporate Citizenship: Protection

    Dylan Minor

    We explore the notion that corporate citizenship, as obtained through Corporate Social Responsibility (CSR), is used by managers to protect firm value, helping their firm better withstand negative business shocks. We formally explore two parallel mechanisms for such protection .one of building moral capital (CSR Contributions) and another of improving investor posteriors (CSR Investments). We find some theoretical and empirical support for both of these, but in different settings. In particular, we find that firms with higher CSR Investments enjoy an average of $1 billion of saved firm value upon an adverse event. In contrast, CSR Contribution firms lose value (on average) upon an event, possibly due to disingenuous contributions. Meanwhile, due to managerial moral hazard, firms with high levels of CSR Contributions face adverse events more often, whereas those with high levels of CSR Investments face them less often.

    Citation:

    Minor, Dylan. "The Value of Corporate Citizenship: Protection." Harvard Business School Working Paper, No. 16-021, August 2015. View Details
  2. Dinr: My First Start-up (A)

    Shikhar Ghosh and Kristina Maslauskaite

    In May 2012, a young employee at Google's London office, Markus Berger, was thinking whether he should quit his job and go after his dream of becoming an entrepreneur. Berger's idea was to create Dinr, a company that would offer an upscale food ingredient delivery service in London. A customer would choose a recipe on Dinr's website and would receive all premeasured ingredients the same evening at their doorstep. Contrary to many existing similar companies, Dinr would not require a weekly subscription, but would operate one-off orders like other traditional food delivery services. Berger had already carried out an Alpha-test of the service and completed an in-depth survey of potential customers to explore the market. Most of the feedback was positive, which confirmed Berger's intuition about this market opportunity. Berger had found a more experienced co-founder with technical expertise, who was willing to join Dinr part-time and gathered £40,000 of initial capital. Yet, making the decision to leave his corporate job and become an entrepreneur was not easy: was Dinr a good business opportunity? Would it be attractive to outside investors? What were the risks involved?

    Keywords: exit strategy; Startup; entrepreneurship; food; start-up; Business Exit or Shutdown; Business Startups; Entrepreneurship; Food;

    Citation:

    Ghosh, Shikhar, and Kristina Maslauskaite. "Dinr: My First Start-up (A)." Harvard Business School Case 816-023, August 2015. View Details
  3. George Washington and the Foundations of American Democracy

    Tom Nicholas and Matthew G. Preble

    George Washington is perhaps the most well-known of the U.S.’s founding fathers because of his political and military achievements. However, Washington also operated a number of successful business ventures out of his Mount Vernon estate, and he became a landowner on the American frontier. Washington’s life and career serve as a lens for understanding the development of the early American economy. Washington was entrepreneurial both economically and politically. He played a central role in helping to structure the new country’s national government and developed a number of precedents as the country’s first executive.

    Keywords: government; history; leadership; entrepreneurship; George Washington; democracy; Decision Making; Entrepreneurship; Government and Politics; Business History; Leadership; United States;

    Citation:

    Nicholas, Tom, and Matthew G. Preble. "George Washington and the Foundations of American Democracy." Harvard Business School Case 816-019, August 2015. View Details
  4. Is Mandatory Nonfinancial Performance Measurement Beneficial?

    Susanna Gallani, Takehisa Kajiwara and Ranjani Krishnan

    We use value of information theory and examine the effect of regulation requiring mandatory measurement and peer disclosure of nonfinancial performance information in the hospital industry. We posit that mandatory nonfinancial performance measurement has an information effect and a referent performance effect. The information (referent performance) effect arises because the new performance signals induce more precise posterior beliefs about individual (relative) performance. Using panel data from the Japanese National Hospital Organization, we analyze performance improvements following regulation requiring standardized measurement and peer disclosure of absolute and relative patient satisfaction performance. After controlling for ceiling effects, bounded dependent variables, and regression to the mean, results show that mandatory nonfinancial performance information measurement and peer disclosure improves overall performance (information effect) with larger improvements for poorly performing hospitals (referent performance effect). These effects are found even in the absence of any compensation-based incentives to improve performance.

    Keywords: value of information; patient satisfaction; mandatory performance measurement; health care;

    Citation:

    Gallani, Susanna, Takehisa Kajiwara, and Ranjani Krishnan. "Is Mandatory Nonfinancial Performance Measurement Beneficial?" Harvard Business School Working Paper, No. 16-018, August 2015. View Details
  5. Blinded by Experience: Prior Experience, Negative News and Belief Updating

    Bradley R. Staats, Diwas S. KC and Francesca Gino

    Traditional models of operations management involve dynamic decision-making assuming optimal (Bayesian) updating. However, behavioral theory suggests that individuals exhibit bias in their beliefs and decisions. We conduct both a field study and two laboratory studies to examine the phenomena in the context of health. In particular, we examine how an individual's prior experiences and the experiences of those around them alter the operational decisions that the individual makes. We draw on an exogenous announcement of negative news by the Food and Drug Administration (FDA) and explore how this affects an operational decision—production tool choice—of interventional cardiologists deciding between two types of cardiac stents. Analyzing 147,000 choices over 6 years, we find that individuals do respond to negative news by using the focal production tool less often. However, we find that both individual's own experience and others' experience alter their responses in predictable ways. Moreover, although individual and other experience act as substitutes prior to negative news, the two types of experience act as complements following the negative announcement—leading to even greater use of the same production tool. Two controlled lab studies replicate our main findings and show that behavioral biases, not rational expectations, drive the effect. Our research contributes not only to operations management research, but also to the practice of healthcare and operations more generally.

    Keywords: behavioral operations; egocentric bias; experience; healthcare Operations;

    Citation:

    Staats, Bradley R., Diwas S. KC, and Francesca Gino. "Blinded by Experience: Prior Experience, Negative News and Belief Updating." Harvard Business School Working Paper, No. 16-015, August 2015. View Details
  6. Approach, Ability, Aftermath: A Psychological Framework of Unethical Behavior at Work

    C. Moore and F. Gino

    Many of the scandalous organizational practices that have come to light in the last decade—rigging LIBOR, misselling payment protection insurance, rampant Wall Street insider trading, large-scale bribery of foreign officials, and the packaging and sale of toxic securities to naïve investors—require ethically problematic judgments and behaviors. However, dominant models of workplace unethical behavior fail to account for what we have learned from moral psychology and cognitive neuroscience in the past two decades about how and why people make the moral decisions they do. In this review, we explain how intuition, affect, physiology, and identity support and inform more deliberative reasoning process in the construction and enactment of moral behavior. We then describe how these processes play into how individuals approach a potential moral choice, whether they have the ability in the moment to enact it, and how it is encoded in the action's aftermath, feeding back into future approaches. Throughout, we attend to the role of organizational context in influencing these processes. By reviewing this large body of research and presenting a new framework that attempts to integrate these new findings, our hope is to motivate new research about how to support more moral workplace behavior that starts from what we know now.

    Citation:

    Moore, C., and F. Gino. "Approach, Ability, Aftermath: A Psychological Framework of Unethical Behavior at Work." Academy of Management Annals 9 (2015): 235–289. View Details
  7. Ron Johnson: A Career in Retail

    Das Narayandas, Joshua D. Margolis and Ryan Raffaelli

    In April 2013, Ron Johnson (HBS '84) stepped down after just 18 months as CEO of J.C. Penney. In his brief tenure, Johnson, an acclaimed retailer respected for his innovation and success in shaping the retail image at Target and Apple, introduced dramatic departures from J.C. Penney's traditional retail approach, and enacted changes quickly and simultaneously, with little market testing. Over Johnson's final 12 months as CEO, J.C. Penney shares dropped more than 50%. The case describes the environments at Target, Apple, and J.C. Penney during Johnson's tenure and how his experiences may have shaped the strategies that he implemented while CEO at J.C. Penney.

    Keywords: Change Management; Innovation Leadership; Situation or Environment; Failure; Management Teams; Brands and Branding; Retail Industry; United States;

    Citation:

    Narayandas, Das, Joshua D. Margolis, and Ryan Raffaelli. "Ron Johnson: A Career in Retail." Harvard Business School Case 516-016, July 2015. View Details
  8. Enabling Versus Controlling

    Andrei Hagiu and Julian Wright

    In an increasing number of industries, firms choose how much control to give professionals over the provision of their services to clients. We study the tradeoffs that arise in choosing between a traditional mode (where the firm takes control of service provision) and a platform mode (where professionals retain control over service provision). The choice of mode is determined by the need to balance two-sided moral hazard problems arising from investments that only professionals can make and investments that only the firm can make, while at the same time minimizing distortions in decisions that either party could make (e.g. promotion and marketing of professionals' services, price setting, choice of service offering, etc.).

    Keywords: platforms; Theory of the Firm; Vertical Integration; control rights; moral hazard;

    Citation:

    Hagiu, Andrei, and Julian Wright. "Enabling Versus Controlling." Harvard Business School Working Paper, No. 16-002, July 2015. (Revised August 2015.) View Details
  9. Preparatory Power Posing Affects Nonverbal Presence and Job Interview Outcomes

    Amy J.C. Cuddy, Caroline A. Wilmuth, Andy J. Yap and Dana R. Carney

    We tested whether engaging in expansive (vs. contractive) "power poses" before a stressful job interview—preparatory power posing—would enhance performance during the interview. Participants adopted high-power (i.e., expansive, open) poses or low-power (i.e., contractive, closed) poses, and then prepared and delivered a speech to two evaluators as part of a mock job interview. All interview speeches were videotaped and coded for overall performance and hireability, and for two potential mediators: verbal content (e.g., structure, content) and nonverbal presence (e.g., captivating, enthusiastic). As predicted, those who prepared for the job interview with high- (vs. low-) power poses performed better and were more likely to be chosen for hire; this relation was mediated by nonverbal presence, but not by verbal content. While previous research has focused on how a nonverbal behavior that is enacted during interactions and observed by perceivers affects how those perceivers evaluate and respond to the actor, this experiment focused on how a nonverbal behavior that is enacted before the interaction and unobserved by perceivers affects the actor's performance, which, in turn, affects how perceivers evaluate and respond to the actor. This experiment reveals a theoretically novel and practically informative result that demonstrates the causal relation between preparatory nonverbal behavior and subsequent performance and outcomes.

    Keywords: Power Posing; Social Evaluation; Nonverbal Behavior; presence; posture; job interviews; Behavior; Job Interviews;

    Citation:

    Cuddy, Amy J.C., Caroline A. Wilmuth, Andy J. Yap, and Dana R. Carney. "Preparatory Power Posing Affects Nonverbal Presence and Job Interview Outcomes." Journal of Applied Psychology 100, no. 4 (July 2015): 1286–1295. View Details
  10. Creativity Under Fire: The Effects of Competition on Creative Production

    Daniel P. Gross

    Though fundamental to innovation and essential to many industries and occupations, the creative act has received limited attention in economics and has historically proven difficult to study. This paper studies the incentive effects of competition on individuals' creative production. Using a sample of commercial logo design competitions, and a novel, content-based measure of originality, I find that competition has an inverted-U effect on creativity: some competition is necessary to induce agents to produce radically novel, untested ideas over incrementally tweaking their earlier work, but heavy competition drives them to stop investing altogether. The results are consistent with economic theory and reconcile conflicting evidence from an extensive literature on the effects of competition on innovation, with implications for R&D policy, competition policy, and organizations in creative or research industries.

    Keywords: creativity; incentives; tournaments; competition; radical vs. incremental innovation;

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