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. Risk Management—The Revealing Hand

    Robert S. Kaplan and Anette Mikes

    Many believe that the recent emphasis on enterprise risk management function is misguided, especially after the failure of sophisticated quantitative risk models during the global financial crisis. The concern is that top-down risk management will inhibit innovation and entrepreneurial activities. We disagree and argue that risk management should function as a Revealing Hand to identify, assess, and mitigate risks in a cost-efficient manner. Done well, the Revealing Hand of risk management adds value to firms by allowing them to take on riskier projects and strategies. But risk management must overcome severe individual and organizational biases that prevent managers and employees from thinking deeply and analytically about their risk exposure. In this paper, we draw lessons from seven case studies about the multiple and contingent ways that a corporate risk function can foster highly interactive and intrusive dialogues to surface and prioritize risks, help to allocate resources to mitigate them, and bring clarity to the value trade-offs and moral dilemmas that lurk in those decisions.

    Keywords: Risk Management;

    Citation:

    Kaplan, Robert S., and Anette Mikes. "Risk Management—The Revealing Hand." Journal of Applied Corporate Finance 28, no. 1 (Winter 2016): 8–18. View Details
  2. Monitoring Global Supply Chains

    Jodi L. Short, Michael W. Toffel and Andrea R. Hugill

    Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers' conduct. But little is known about what influences auditors' ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all-male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains. Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers’ conduct. But little is known about what influences auditors’ ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all-male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains.

    Keywords: Monitoring; transaction cost economics; industry self-regulation; auditing; Codes of conduct; supply chains; corporate social responsibility; globalization; Corporate Social Responsibility and Impact; Supply Chain; Globalization;

    Citation:

    Short, Jodi L., Michael W. Toffel, and Andrea R. Hugill. "Monitoring Global Supply Chains." Strategic Management Journal 37, no. 9 (September 2016): 1878–1897. (Revised July 2015. Previously titled "Monitoring the Monitors: How Social Factors Influence Supply Chain Auditors.") View Details
  3. Decision-Making by Precedent and the Founding of American Honda (1948 – 1974)

    Ramon Casadesus-Masanell and John Heilbron

    American Honda was founded in 1959 as a wholly owned subsidiary of the Honda Motor Company to facilitate sales and distribution in the United States. The details of American Honda’s early history have long served as evidence in debates among scholars and practitioners about the managerial determinants of the subsidiary’s success. In particular, it is debated whether American Honda operated according to a deliberate or emergent strategy, i.e. whether or not strategic decisions made in the States conformed to the intentions of upper management. This paper presents evidence that Kihachiro Kawashima, President of American Honda from 1959 to 1965, made important decisions according to precedent set by his boss and mentor, Honda’s chief strategist, Takeo Fujisawa. It presents further evidence that these decisions may have contributed to the recovery of American Honda from its sales crisis during the late 1960s and its continued success thereafter. Addressing ourselves to concepts in the management literature, we argue that strategy realized by the appeal of subordinates to the historical precedent of their superiors defies categorization as deliberate or emergent.

    Citation:

    Casadesus-Masanell, Ramon, and John Heilbron. "Decision-Making by Precedent and the Founding of American Honda (1948 – 1974)." Harvard Business School Working Paper, No. 17-016, August 2016. View Details
  4. Unpacking Team Diversity: An Integrative Multi-Level Model of Cross-Boundary Teaming

    Amy C. Edmondson and Jean-François Harvey

    Teaming across expertise boundaries, within and across organizations, is an increasingly popular strategy for innovation. Although membership diversity expands the range of perspectives that teams can draw upon to innovate, meta-analyses of the team-diversity literature have found weak or inconsistent support for that assumption. These studies also have typically examined effects of team diversity in relatively stable bounded teams, rather than in newly formed temporary groups. Drawing from two streams of research to unpack team diversity, this paper seeks to describe the complexity of cross-boundary teaming, while highlighting factors that may be central to its effectiveness. Past research on team diversity suggests numerous moderators that affect the diversity-performance relationship in teams, while research on knowledge and practice explores the situated activities and logics of diverse experts in great depth. Both streams thus shed light on team diversity, offering complementary insights. We develop a model of cross-boundary teaming that marries these streams and offers human resource management researchers and professionals insights and approaches for helping diverse teams tackle complex problems.

    Keywords: Team diversity; Knowledge boundaries; Teamwork; teams; Boundary Spanning; innovation; Groups and Teams; Collaborative Innovation and Invention;

    Citation:

    Edmondson, Amy C., and Jean-François Harvey. "Unpacking Team Diversity: An Integrative Multi-Level Model of Cross-Boundary Teaming." Harvard Business School Working Paper, No. 17-013, August 2016. View Details
  5. Building Smart Neighborhoods at Bouygues

    Amy C. Edmondson, Bertrand Moingeon, Guo Bai and Jean-François Harvey

    Can a consortium of 16 organizations, including multinational corporations, local government agencies, and startups, turn a run-down Paris suburb into a “smart” (ecologically viable, high-tech, livable) neighborhood? This case explores how Bouygues Immobilier led such a project involving Alstom, Bouygues Energies & Services, Bouygues Telecom, EDF (Electricity of France), ERDF (Electricity Distribution Grid of France), Microsoft, Schneider Electric, Steria, and Total in Issy-les-Moulineaux (France). The enormous scope and diversity of the project is presented as well as the teaming strategies and governance model that facilitated its success. IssyGrid® earned the “Golden Issy” and “Grand Paris,” among other awards, for its innovation and performance.

    Keywords: collaboration; teaming; cross-industry collaboration; interorganizatonal relationships; governance; innovation; nascent industries; smart cities; Governance; Collaborative Innovation and Invention; Innovation and Management; Innovation Strategy; Technological Innovation; Information Technology Industry; Construction Industry; Paris; France;

    Citation:

    Edmondson, Amy C., Bertrand Moingeon, Guo Bai, and Jean-François Harvey. "Building Smart Neighborhoods at Bouygues." Harvard Business School Case 617-007, August 2016. View Details
  6. Experimental Evidence on Policies Aimed at Closing the Gender Gap in Willingness to Guess on Multiple-Choice Tests

    Katherine Baldiga Coffman

    Research has shown that women skip more questions than men on multiple-choice tests with penalties for wrong answers. We propose and test five policy changes aimed at eliminating this source of gender bias in test scores. Our data show that simply removing the penalty for wrong answers reduces the number of questions skipped by test-takers; however, in this treatment, women still skip more questions than men. We identify two other effective interventions, both of which maintain the standard scoring structure of multiple-choice tests (penalties for wrong answers), reduce the number of questions skipped by test-takers, and eliminate the gender gap.

    Citation:

    Coffman, Katherine Baldiga. "Experimental Evidence on Policies Aimed at Closing the Gender Gap in Willingness to Guess on Multiple-Choice Tests." Working Paper, August 2016. View Details
  7. Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates

    Peter R. Joos, Joseph D. Piotroski and Suraj Srinivasan

    We use a dataset of sell-side analysts' scenario-based valuation estimates to examine whether analysts reliably assess the risk surrounding a firm's fundamental value. We find that the spread in analysts' state-side contingent valuations captures the riskiness of operations and predicts the absolute magnitude of future long-run valuation errors and changes in fundamentals. Similarly, asymmetry embedded in the analysts' scenario-based valuations conveys information about asymmetric risk-reward exposure and predicts skewness in future long-run valuation errors; however, embedded asymmetry is not correlated with changes in fundamentals. The results confirm that analysts' valuations reflect both state-contingent risk assessments and non-fundamental factors.

    Keywords: valuation; analyst forecasts; scenarios; uncertainty; Risk and Uncertainty; Valuation; Forecasting and Prediction;

    Citation:

    Joos, Peter R., Joseph D. Piotroski, and Suraj Srinivasan. "Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates." Journal of Financial Economics 121, no. 3 (September 2016): 645–663. View Details
  8. The Effect of Background Music in Shark Documentaries on Viewers' Perceptions of Sharks

    Andy Nosal, Elizabeth A. Keenan, Philip A. Hastings and Ayelet Gneezy

    There has been substantial growth in the number of physicians pursuing Master of Business Administration (MBA) degrees over the past decade, but there is continuing debate over the utility of these programs and the career outcomes of their graduates. The authors analyzed the clinical and professional activities of a large cohort of physician-MBAs by gathering information on 206 physician graduates from the Harvard Business School MBA program who obtained their degrees between 1941 and 2014. Key outcome measures that were examined include medical specialty, current professional activity, and clinical practice. Chi square tests were used to assess the correlations in the data. Among the careers that were tracked (n = 195), there was significant heterogeneity in current primary employment. The most common sectors were clinical (27.7%), investment banking/finance (27.0%), hospital/provider administration (11.7%), biotech/device/pharmaceutical (10.9%), and entrepreneurship (9.5%). Overall, 84% of physician-MBAs entered residency; approximately half (49.3%) remained clinically active in some capacity and only one-fourth (27.7%) reported clinical medicine as their primary professional role. Among those who pursued residency training, the most common specialties were internal medicine (39.3%), emergency medicine (10.4%), orthopedic surgery (9.2%), and general surgery (8.6%). Physician-MBAs trained in internal medicine were significantly more likely to remain clinically active (63.8% vs 42.4%; P = .01). Clinical activity and primary employment in a clinical role decreased after degree conferment. After completing their education, a majority of physician-MBAs divert their primary professional focus away from clinical activity. These findings reveal new insights into the career outcomes of physician-MBAs.

    Keywords: Natural Environment; Prejudice and Bias; Marketing; Attitudes; Music Entertainment;

    Citation:

    Nosal, Andy, Elizabeth A. Keenan, Philip A. Hastings, and Ayelet Gneezy. "The Effect of Background Music in Shark Documentaries on Viewers' Perceptions of Sharks." PLoS ONE 11, no. 8 (August 2016). View Details
  9. Hamilton: An American Musical

    Anita Elberse and Jennifer Lauren Schoppe

    In July 2013, composer, writer, actor and rapper Lin-Manuel Miranda, director Tommy Kail, and producer Jeffrey Seller met to discuss how to launch Hamilton, a new musical based on the life of the first Treasury Secretary of the United States, Alexander Hamilton. With a hip-hop score and an ethnically diverse cast that looked nothing like their historical counterparts, Hamilton was an unlikely candidate for success on Broadway. The trio needed to decide which of two popular routes was best to bring their new musical to Broadway: either take the production straight to Broadway in a 'cold open,' or strike an 'enhancement deal' with a non-profit theater so the musical could be tested before mounting a more expensive Broadway run. Could a hip-hop musical about a largely forgotten Founding Father be a Broadway blockbuster? And if so, what was the right next step in bringing Hamilton closer toward that goal?

    Keywords: entertainment; Creative Industries; performing arts; product development; product launch; marketing; (general) management; strategy; blockbusters; non-profit; Strategy; Risk Management; Nonprofit Organizations; Arts; Creativity; Product Launch; Product Development; Theater Entertainment; Entertainment and Recreation Industry; United States;

    Citation:

    Elberse, Anita, and Jennifer Lauren Schoppe. "Hamilton: An American Musical." Harvard Business School Case 517-015, July 2016. View Details
  10. Spotify

    Anita Elberse and Alexandre de Pfyffer

    In November 2014, Spotify's chief content officer Ken Parks learns that record label Big Machine Records has requested the immediate removal of superstar artist Taylor Swift's entire catalogue from Spotify's music streaming service. Is it time for Spotify to reconsider the policies that seem to have prompted Swift's catalogue takedown—and specifically the company's insistence that artists offer the same assortment across countries and not target only premium tiers? Will the takedown request lead to other artists considering a defection from the service, and if so, what can Spotify's executives do to prevent others from leaving? And, as it is only a matter of time before the news will be common knowledge among both music-industry insiders and fans, how should Spotify respond in the public domain?

    Keywords: entertainment; marketing; superstar; music; Music industry; entertainment marketing; media; Digital technology; Creative Industries; product portfolio management; general management; strategy; Management; Strategy; Online Technology; Open Source Distribution; Creativity; Music Entertainment; Product Marketing; Music Industry;

    Citation:

    Elberse, Anita, and Alexandre de Pfyffer. "Spotify." Harvard Business School Case 516-046, July 2016. View Details
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