UCL School of Management is delighted to welcome Oded Koenigsberg, London Business School, to host a research seminar discussing: The Costs of Managers’ Biases: Price and Quality Decisions.

Abstract:

This work focuses on a theory of price and quality decisions by biased managers. In the theory, firms stress the price or quality of their products, but not both. Accounting for this, managers exploit any uncertainty about the cause of market outcomes to credit positive results to the dominant (“strategic”) factor and blame negative results on the other. Doing so is psychologically rewarding. The problem with biased attributions, however, is that they prompt biased decisions. This research is motivated by empirical evidence. We, then, develop a model to understand the cost of managers’ biases under different market conditions. Counter to intuition, we find that firms in a competitive setting can profit from biased managers.