Detecting Regime Shifts: The Causes of Under- and Overreaction

@article{Massey2005DetectingRS,
  title={Detecting Regime Shifts: The Causes of Under- and Overreaction},
  author={Cade Massey and George Wu},
  journal={Management Science},
  year={2005},
  volume={51},
  pages={932-947}
}
Many decision makers operate in dynamic environments in which markets, competitors, and technology change regularly. The ability to detect and respond to these regime shifts is critical for economic success. We conduct three experiments to test how effective individuals are at detecting such regime shifts. Specifically, we investigate when individuals are most likely to underreact to change and when they are most likely to overreact to it. We develop a system-neglect hypothesis: Individuals… CONTINUE READING

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