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. On Wealth and the Diversity of Friendships: High Social Class People around the World have fewer International Friends

    Maurice H. Yearwood, Amy Cuddy, Nishtha Lambaa, Wu Youyoua, Ilmo van der Lowe, Paul K. Piff, Charles Gronin, Pete Fleming, Emiliana Simon-Thomas, Dacher Keltner and Aleksandr Spectre

    Having international social ties carries many potential advantages, including access to novel ideas and greater commercial opportunities. Yet little is known about who forms more international friendships. Here, we propose social class plays a key role in determining people's internationalism. We conducted two studies to test whether social class is related positively to internationalism (the building social class hypothesis) or negatively to internationalism (the restricting social class hypothesis). In Study 1, we found that among individuals in the United States, social class was negatively related to percentage of friends on Facebook that are outside the United States. In Study 2, we extended these findings to the global level by analyzing country-level data on Facebook friends formed in 2011 (nearly 50 billion friendships) across 187 countries. We found that people from higher social class countries (as indexed by GDP per capita) had lower levels of internationalism—that is, they made more friendships domestically than abroad.

    Keywords: friendships; Social Class; internationalism; Wealth; Relationships; Globalization;


    Yearwood, Maurice H., Amy Cuddy, Nishtha Lambaa, Wu Youyoua, Ilmo van der Lowe, Paul K. Piff, Charles Gronin, et al. "On Wealth and the Diversity of Friendships: High Social Class People around the World have fewer International Friends." Personality and Individual Differences 87 (December 2015): 224–229. View Details
  2. Incentives for Prosocial Behavior: The Role of Reputations

    Christine L Exley

    Do monetary incentives encourage volunteering? Or, do they introduce a "greedy" signal and hence crowd out the motivation to volunteer? Since the strength of this greedy signal is normally unobserved, the answer is theoretically unclear, and corresponding empirical evidence is mixed. I overcome this ambiguity by examining individuals for whom the greedy signal strength is likely weak - those with public reputations about their past volunteer behavior. In a laboratory experiment, I show that crowd out in response to public incentives is much less likely among those with public, as opposed to private, reputations.

    Keywords: incentives; image motivation; volunteer; prosocial behavior; altruism; gender;


    Exley, Christine L. "Incentives for Prosocial Behavior: The Role of Reputations." Harvard Business School Working Paper, No. 16-063, November 2015. View Details
  3. The Probability of Rare Disasters: Estimation and Implications

    Emil Siriwardane

    I analyze a rare disasters economy that yields a measure of the risk neutral probability of a macroeconomic disaster, p*t . A large panel of options data provides strong evidence that p*t is the single factor driving option-implied jump risk measures in the cross section of firms. This is a core assumption of the rare disasters paradigm. A number of empirical patterns further support the interpretation of p*t as the risk-neutral likelihood of a disaster. First, standard forecasting regressions reveal that increases in p*t lead to economic downturns. Second, disaster risk is priced in the cross section of U.S. equity returns. A zero-cost equity portfolio with exposure to disasters earns risk-adjusted returns of 7.6% per year. Finally, a calibrated version of the model reasonably matches the: (i) sensitivity of the aggregate stock market to changes in the likelihood of a disaster and (ii) loss rates of disaster risky stocks during the 2008 financial crisis.

    Keywords: Financial Markets; Forecasting and Prediction; Financial Crisis; Macroeconomics;


    Siriwardane, Emil. "The Probability of Rare Disasters: Estimation and Implications." Harvard Business School Working Paper, No. 16-061, November 2015. View Details
  4. The U.S. Experiment with Fair Trade Laws: State Police Powers, Federal Antitrust, and the Politics of 'Fairness,' 1890-1938

    Laura Phillips Sawyer

    Prior to the Great Depression and President Franklin Roosevelt's New Deal programs, considerable pressure for antitrust revision came from trade associations of independent proprietors. A perhaps unlikely leader, Edna Gleason, organized California's retail pharmacists and coordinated trade networks to monitor and enforce Resale Price Maintenance (RPM) contracts, a system of price-fixing, then known as "fair trade." Progressive jurists, including Louis Brandeis, and institutional economist E.R.A. Seligman supported RPM as a legitimate tactic to protect small businesspeople and enhance non-price competition. The breakdown of legal and economic consensus regarding what constituted "unfair competition" allowed businesspeople to act as intermediaries between heterodox economic thought and contested antitrust law, ultimately tailoring federal policy to accommodate state regulations.

    Keywords: Competition; Fairness; Laws and Statutes; Supply and Industry; Business and Government Relations;


    Sawyer, Laura Phillips. "The U.S. Experiment with Fair Trade Laws: State Police Powers, Federal Antitrust, and the Politics of 'Fairness,' 1890-1938." Harvard Business School Working Paper, No. 16-060, November 2015. View Details
  5. Flipkart: Transitioning to a Marketplace Model

    Das Narayandas, Sunil Gupta and Rachna Tahilyani

    The foregoing Facebook post, which had gone viral and received more than 20,000 likes, was being reviewed by Sachin Bansal and Binny Bansal, co-founders of India's largest e-tailer, Flipkart. A pair of women's sandals listed by a third party seller on the Flipkart website at 799 Indian rupees (`), and offered on promotion at `399, was discovered, upon close examination of the product's display photo, to have a `399 price tag printed on the strap. Consistent with stated goals of transparency and building trusted relationships with customers, the Bansals immediately drafted an apology and directed that the sellers' agreement with Flipkart be terminated.

    Keywords: marketplaces; online retail; e-commerce; Market Platforms; Online Technology; Corporate Disclosure; Ethics; Retail Industry; India;


    Narayandas, Das, Sunil Gupta, and Rachna Tahilyani. "Flipkart: Transitioning to a Marketplace Model." Harvard Business School Case 516-017, November 2015. View Details
  6. Why Organizations Don't Learn: Our Traditional Obsessions—Success, Taking Action, Fitting In, and Relying on Experts—Undermine Continuous Improvement

    F. Gino and B. Staats

    For any enterprise to be competitive, continuous learning and improvement are key—but not always easy to achieve. After a decade of research, the authors have concluded that four biases stand in the way: we focus too heavily on success, are too quick to act, try too hard to fit in, and rely too much on experts. Each of these biases raises challenges, but each can be curbed with particular strategies. A preoccupation with success, for example, leads to an unreasonable fear of failure, a mindset that inhibits risk taking, a focus on past performance rather than potential, and blindness to the role of luck in successes and failures. Managers, therefore, need to treat mistakes as learning opportunities, recognize and foster workers' capacity for growth, and conduct data-based project reviews. To counter the bias toward action—and the unthinking perpetual motion and exhaustion that ensue—leaders can schedule more work breaks and make time for reflection. They can redress the tendency to conform, which stifles innovation, by encouraging workers to cultivate their individual strengths and to speak up when they have ideas for improvements. And they can develop and empower their employees to solve problems instead of turning automatically to outside experts.
  7. The Cambridge Handbook of Consumer Psychology

    Michael I. Norton, Derek D. Rucker and Cait Lamberton

    Why do consumers make the purchases they do, and which ones make them truly happy? Why are consumers willing to spend huge sums of money to appear high status? This handbook addresses these key questions and many more. It provides a comprehensive overview of consumer psychology, examining cutting-edge research at the individual, interpersonal, and societal levels. Leading scholars summarize past and current findings and consider future lines of inquiry to deepen our understanding of the psychology behind consumers' decision making, their interactions with other consumers, and the effects of societal factors on consumption. The Cambridge Handbook of Consumer Psychology will act as a valuable guide for faculty as well as graduate and undergraduate students in psychology, marketing, management, sociology, and anthropology.


    Norton, Michael I., Derek D. Rucker and Cait Lamberton, eds. The Cambridge Handbook of Consumer Psychology. New York: Cambridge University Press, 2015. View Details
  8. Toxic Workers

    Michael Housman and Dylan Minor

    While there has been a strong focus in past research on discovering and developing top performers in the workplace, less attention has been paid to the question of how to manage those workers on the opposite side of the spectrum: those who are harmful to organizational performance. In extreme cases, aside from hurting performance, such workers can generate enormous regulatory and legal fees and liabilities for the firm. We explore a large novel dataset of over 50,000 workers across 11 different firms to document a variety of aspects of workers' characteristics and circumstances that lead them to engage in what we call "toxic" behavior. We also explore the relationship between toxicity and productivity, and the ripple effect that a toxic worker has on her peers. Finally, we find that avoiding a toxic worker (or converting him to an average worker) enhances performance to a much greater extent than replacing an average worker with a superstar worker.

    Keywords: strategic human resource management; Misconduct; worker productivity; ethics; superstar; Ethics; Performance Productivity; Personal Characteristics; Employees;


    Housman, Michael, and Dylan Minor. "Toxic Workers." Harvard Business School Working Paper, No. 16-057, October 2015. (Revised November 2015.) View Details
  9. Building Watson: Not So Elementary, My Dear! (Abridged)

    Willy C. Shih

    This case is set inside IBM Research's efforts to build a computer that can successfully take on human challengers playing the game show Jeopardy! It opens with the machine named Watson offering the incorrect answer "Toronto" to a seemingly simple question during the championship match. Was the answer a reflection of a strategic weakness, or was it actually consistent with design principles established by the development team?
    The case seeks to expand students' view of the product development process. Traditional software development projects begin with the gathering of requirements and analysis of the problem, and the writing of a detailed specification. The Jeopardy! problem is different—it requires a probabilistic approach where there is no closed form solution. Instead statistical patterns in the data are important and there is no obvious mapping to the way queries are expressed. Such problems are increasingly common in data mining, optimization problems, or Internet applications where the goal is to find an acceptably good solution in a short amount of time, when a deterministic approach might be less fruitful or impractical. We aspire for students to recognize that product development can take many forms, and that these are enabled by creativity and the right organizational flexibility and mindset.
    This abridged version of the case focuses on the choice of Jeopardy! as the development target, and the approach taken by the development team. The original case is HBS No. 612-017, and has much more detail on the design strategy for the Watson system.

    Keywords: analytics; big data; business analytics; product development; product development strategy; information technology; Product Development; Information Technology Industry; United States;


    Shih, Willy C. "Building Watson: Not So Elementary, My Dear! (Abridged)." Harvard Business School Case 616-025, October 2015. View Details
  10. Expertise vs. Bias in Evaluation: Evidence from the NIH

    Danielle Li

    Evaluators with expertise in a particular field may have an informational advantage in separating good projects from bad. At the same time, they may also have personal preferences that impact their objectivity. This paper develops a framework for separately identifying the effects of expertise and bias on decision making and applies it in the context of peer review at the US National Institutes of Health (NIH). I find evidence that evaluators are biased in favor of projects in their own area, but that they also have better information about the quality of those projects. On net, the benefits of expertise tend to dominate the costs of bias. As a result, policies designed to limit reviewer biases may also reduce the quality of funding decisions.

    Keywords: Prejudice and Bias; Performance Evaluation; Experience and Expertise;


    Li, Danielle. "Expertise vs. Bias in Evaluation: Evidence from the NIH." Harvard Business School Working Paper, No. 16-053, October 2015. View Details
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