Making sense of overconfidence in market entry

Cain, Daylian M.; Moore, Don A.; Haran, Uriel

doi:10.1002/smj.2196

Cited by 128 publications

(102 citation statements)

References 56 publications

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“…First, our measure of CEO overconfidence is based on the personal investment decisions of the CEO, which has been used extensively in previous studies Malmendier et al, 2011;Malmendier & Tate, 2005. Although this measure correlates highly with other proxies of overconfidence such as the portrayal of the CEO in the press , we urge future studies to examine alternative measures of overconfidence (e.g., Cain, Moore, & Haran, 2015).…”

Section: Limitations and Future Researchmentioning

confidence: 99%

CEO overconfidence and CSR decoupling

Sauerwald

2019

Corporate Governance

107

128

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Research question/issue This study examines whether there is decoupling between how firms communicate about corporate social responsibility (CSR) and what firms do in terms of CSR. We argue that this CSR decoupling is driven by the CEOs' cognitive biases. Specifically, we propose that overconfident CEOs increase CSR decoupling. Research findings/insights We tested our arguments in a sample of S&P 500 firms for the period of 2006–2014. We find that CEO overconfidence is positively related to the decoupling between the optimistic tone of CSR reporting and the firm's actual corporate social performance. However, the board of directors mitigates the effect of CEO overconfidence on CSR decoupling when outside directors have CSR expertise and ownership incentives. Theoretical/academic implications Previous studies have suggested that CSR decoupling is a function of opportunistic management that can be constrained by external monitoring. We examine CSR decoupling as a function of cognitive biases (such as overconfidence) that can be constrained by internal monitoring. Practitioner/policy implications This study provides insights into the conditions when CSR information released by the firm is symbolic. Practitioners may prevent such symbolic CSR reporting by imposing effective oversight by the board of directors.

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Section: Limitations and Future Researchmentioning

confidence: 99%

CEO overconfidence and CSR decoupling

Sauerwald

2019

Corporate Governance

107

128

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“…In general, stronger perceived effectiveness makes individuals more likely to believe the proenvironmental behavior is beneficial to the ecological environment (Hanss, Böhm, Doran, & Homburg, 2016;Nguyen et al, 2019). However, excessively strong perceived effectiveness of environmental behavior (PEEB) may lead to overconfidence, namely, blind confidence regarding the environmental or social effects generated by going green (Cain, Moore, & Haran, 2015). This means PEEB may moderate the "fear appeals" triggered by MP.…”

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confidence: 99%

Diagnose barriers to sustainable development: A study on “desensitization” in urban residents' green purchasing behavior

Yang

Zhang

2019

Sustainable Development

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It is of great significance to remove barriers to green purchasing to improve the environmental governance efficiency of the green market. For this purpose, this paper takes the validity of the environmental “fear appeals” as the starting point and explores the formation mechanism of the “desensitization” to green consumption. Based on structural equation modeling and multiple regression model, we carried out an empirical study on a sample of 479 urban adult residents. The results show that media persuasion exerted a positive impact on green purchasing behavior through the perceived seriousness of environmental problems. The perceived seriousness of environmental problems positively impacted green purchasing behavior and played a partial mediated effect between media persuasion and green purchasing behavior. Meanwhile, the mediated effect of the perceived seriousness of environmental problems was negatively moderated by both perceived effectiveness of environmental behavior and switching costs. Moreover, the analysis of urban adults' “desensitization” to green consumption indicates that the formation mechanism of adults' “desensitization” was different from that of the minors. Our conclusions bear certain theoretical and practical significance for the media to correctly use green persuasion strategies and rectify bias in green attitudes and behaviors, as well as for enterprises to conduct green marketing, etc.

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“…These decision biases prevent managers from completely avoiding errors in estimating a competitor's ability (Goldfarb & Yang, ; Li, Petruzzi, & Zhang, ; Li, ; Prescott & Visscher, ). For example, using controlled laboratory studies, Moore and Cain () and Cain, Moore, and Haran () find that entrants to a market tend to systematically overestimate or underestimate their rivals. In a similar vein, using the data from U.S. local telephone markets shortly after the Telecommunications Act of 1996, Goldfarb and Xiao () demonstrate that a new entrant's ability to predict the incumbent's behavior varies and depends on the manager experience and education of the new entrant.…”

Section: Introductionmentioning

confidence: 99%

Incumbent repositioning with decision biases

2019

Strategic Management Journal

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Research Summary Incumbent firms often reposition themselves in response to entrants, but when doing so they incur repositioning costs. Incumbent repositioning costs and the associated decision biases have been identified in the economics, operations, and strategy literatures as critical aspects of the competitive interactions between incumbents and entrants, but they have received limited attention in game‐theoretic treatments at the strategy level. To fill this gap, we develop a strategic mental model to analytically characterize the impacts of repositioning costs and decision biases on firms' equilibrium strategies and profits. Including these costs and biases changes, the nature of strategic dynamics as well as introduces new implications for strategic choice. Managerial Summary Our analysis shows that although biases by themselves are unequivocally harmful for firms, both the entrant and incumbent can earn more when they are biased than when neither one is. In particular, when an entrant is biased in estimating an incumbent's repositioning ability, this unequivocally reduces its own performance, if the incumbent is aware of the entrant's bias and has correctly assessed it. In a similar vein, when an incumbent is biased in its estimation of the entrant, this hurts the incumbent. However, both the entrant and the incumbent can earn more than they would in a setting where both firms are unbiased. Furthermore, the incumbent is not necessarily better off by being less biased—that is, aware of but with an inaccurate assessment of entrant bias.

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Making sense of overconfidence in market entry

Cited by 128 publications

References 56 publications

CEO overconfidence and CSR decoupling

CEO overconfidence and CSR decoupling

Diagnose barriers to sustainable development: A study on “desensitization” in urban residents' green purchasing behavior

Incumbent repositioning with decision biases

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