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The evidence is disturbingly clear: Most major business initiatives--mergers and acquisitions, capital investments, market entries--fail to ever pay off. Economists would argue that the low success rate reflects a rational assessment of risk, with the returns from a few successes outweighing the losses of many failures. But two distinguished scholars of(More)
A reference price is an internal price that consumers are believed to use to compare actual prices. Reference effects for price have been demonstrated in many settings. Reference effects for quality also have been demonstrated using scanner data. Here we present experimental evidence. Firstly, it is shown that high quality goods will be valued more by(More)
Pursuing a merger or acquisition is inherently difficult. Things get even harder when executives are blind to their own faulty assumptions, say Lovallo--a professor at the University of Western Australia Business School and a senior adviser to McKinsey--and three of his McKinsey colleagues. The authors identify biases that can surface at each step of the(More)
When an executive makes a big bet, he or she typically relies on the judgment of a team that has put together a proposal for a strategic course of action. After all, the team will have delved into the pros and cons much more deeply than the executive has time to do. The problem is, biases invariably creep into any team's reasoning-and often dangerously(More)
Film studios occasionally withhold movies from critics before their release. Since the unreviewed movies tend to be below average in quality, this practice provides a useful setting in which to test models of limited strategic thinking: Do moviegoers seem to realize that no review is a sign of low quality? A companion paper showed that in a set of all(More)
Film distributors occasionally withhold movies from critics before their release. Cold openings provide a natural field setting to test models of limited strategic thinking. In a set of 856 widely released movies, cold opening produces a significant 15% increase in domestic box office revenue (though not in foreign markets and DVD sales), consistent with(More)
Many meaningful decision problems are choices among gambles with delayed resolution of uncertainty (DRU). Notably, students of decision making have concentrated their attention largely on gambles with instantaneously resolved uncertainty. A descriptive theory is proposed for evaluating gambles with DRU such that period gambles (i.e., gambles resolved at the(More)