Behavioral Reasons for New Product Failure: Does Overconfidence Induce Overforecasts?

Efforts to organize and integrate research findings on new product performance determinants have lagged since the last significant overview paper appeared over a decade ago. Importantly, this literature has not considered entire categories of factors that are known to affect managerial decisions and behavior, namely those that pertain to decision‐makers' cognitive limitations and incentive structures. This research empirically investigates one specific cognitive distortion heretofore neglected in studies of new product commercialization—overconfidence, commonly defined in the literature as excessive belief in one's own abilities to generate superior performance. To lay the groundwork for subsequent exploration, the paper first introduces a behavioral model that both organizes well‐understood new product performance determinants and illuminates others heretofore not studied, namely incentive alignment and cognitive limitations and biases. The model summarizes extant research and allows development of research hypotheses related to overconfidence. The hypotheses and empirical investigation motivated by the model address two questions about the impact of overconfidence on new product commercialization activities. First, the study explores whether overconfidence is associated with overforecasting new product demand. Second, it evaluates two complementary mechanisms that may account for overconfidence‐induced overforecasts. The empirical findings are based on data generated in the course of management simulation workshops conducted among graduate students at three leading business schools in India. Three hundred thirty participants played individually four rounds of a computer‐based simulation game that involved decisions pertaining to new product development (including product formulation) and commercialization strategies. The decisions were captured and analyzed using statistical techniques. The results reveal that decision‐makers' overconfidence is associated with a higher likelihood of overforecasting new product sales. The observed effect is fully mediated by flawed tactical decisions that dampen demand, namely elevated product pricing. Sensitivity analyses show that these results are robust to a number of alternative explanations. However, the study finds no evidence implicating overconfident individuals as poor “innovators”—overconfident and nonoverconfident decision‐makers experienced comparable market demand for their new products. The paper concludes with a discussion of the results and provides specific recommendations for practice.     

A framework for developing word fragment completion tasks

To broaden our understanding of the person-based phenomena that impact organizational behavior, researchers are increasingly making use of implicit measures. Explicit measures tap affect, attitudes, and self-concepts that are accessible to introspective awareness, which are sometimes unreliable or distorted by response biases. In contrast, implicit measures assess mental content and processes that operate outside awareness. Unfortunately, the ad hoc manner in which implicit measures are sometimes developed is problematic. As a way of improving research on implicit content and processes, we present a detailed and practical framework for developing one type of implicit measure: word fragment completion tasks. Such tasks have been successfully used to measure a variety of individual difference variables in previous organizational research. Our framework draws on previous research and well understood psychometric principles to describe a process for creating reliable and valid word fragment completion tasks.     

D-optimal weighing designs for six objects

For all integers m≥6, we determine the maximum value of det X ^T X, where X is an m×6 (0, 1)-matrix, and exhibit (D-optimal) matrices X for which the maximum occurs. For D-optimal matrices X, the uniqueness of the Gram matrix X ^T X is discussed. Received: May 2000     

Rational Strategic Reasoning: An Unnatural Act?

We review recent literature on competitive reactions and strategic thinking and offer several observations. Evidence is mounting that strategic thinking is an unnatural act, made difficult by natural individual biases and organizational roadblocks. In addition, it is possible that uncertainty about competitive behavior is caused by and contributes to informal and incomplete competitive intelligence. We propose a simple model which suggests a potential path dependency in a firm's intelligence gathering, driven by the inertia of its past decision-making. Such a path dependency can be broken, however, as evidenced by several examples of firms who have overcome barriers to strategic thinking in creative ways. Paradoxically, though, there are circumstances in which competition is overemphasized in decision-making. Research priorities are discussed.     

Gender Comparisons in Strategic Decision-Making: An Empirical Analysis of the Entrepreneurial Strategy Matrix

The strategic decision-making of male and female small businesspersons and entrepreneurs has been investigated in prior research, but the findings are mixed. This article reports on a gender comparison testing of the Entrepreneurial Strategy Matrix, a situational model which suggests strategies for new and ongoing ventures in response to the identification of different levels of venture innovation and risk. A national sample of 184 small firm owers (59 percent male/41 percent female) was tested. Results indicate that there are no significant gender differences in venture innovation/risk situation or in strategies chosen by business owners. Male respondents did indicate a higher overall satisfaction with venture performance than did females.     

Low-latency trading

We define low-latency activity as strategies that respond to market events in the millisecond environment, the hallmark of proprietary trading by high-frequency traders though it could include other algorithmic activity as well. We propose a new measure of low-latency activity to investigate the impact of high-frequency trading on the market environment. Our measure is highly correlated with NASDAQ-constructed estimates of high-frequency trading, but it can be computed from widely-available message data. We use this measure to study how low-latency activity affects market quality both during normal market conditions and during a period of declining prices and heightened economic uncertainty. Our analysis suggests that increased low-latency activity improves traditional market quality measures—decreasing spreads, increasing displayed depth in the limit order book, and lowering short-term volatility. Our findings suggest that given the current market structure for U.S. equities, increased low-latency activity need not work to the detriment of long-term investors.     

Bond Immunization for Affine Term Structures

This paper generalizes a number of important immunization theorems. We show that the Fisher and Weil immunization, Bierwag and Khang minimax, Redington multiple liability, and Bierwag, Kaufman, and Toevs coverage theorems can be generalized to the class of affine term structures. This class of term structures contains many models that are commonly used in the finance literature.     

Distributional Coalitions,the Industrial Revolution,and the Origins of Economic Growth in Britain

From the late 1600s to the mid 1800s, Britain was able to transform from a divided kingdom with a fragmented, often stagnant economy into a powerful and stable state that simultaneously saw an expansion in the power, wealth, and stability of the central government while encouraging an economic transformation that gradually allowed both industrial technology and liberal commerce to flourish and break out of its mercantilist straitjacket. We explain how rent-seeking elites who might normally have opposed such sweeping transformations promoted institutional changes that, in the long run, expanded the economy and encouraged innovation even at the expense of class interests. In the short run, this meant that rent-seeking in the 18th century was not so much reduced as redirected from local monopolies to state authorities and Parliament. But in the longer run, the process of professionalization made possible greater liberalism in general, even at the expense of general rent-seeking itself. The position of Parliament as a meta-institution for reforming and weakening rent-creating restrictions as needed was pivotal to this process. Ideological changes—particularly the Scottish enlightenment—transformed the terms of the debate but could only be operationalized once interests were aligned so that gainers from industrialization could compensate or overcome traditional interests.     

Urban air pollution progress despite sprawl: The “greening” of the vehicle fleet

Growing cities, featuring more people with higher incomes who live and work in the suburbs and commute by private vehicle, should be a recipe for increased air pollution. Instead, California's major polluted urban areas have experienced sharp improvements in air quality. Technological advance has helped to “green” the average vehicle. Such quality effects have offset the rising quantity of miles driven. This paper uses several vehicle data sets to investigate how California's major cities have enjoyed air pollution gains over the last 20 years.     

Progressive Revenue Sharing in Major League Baseball: The Effect on Player Transfers and Talent Distribution

Major League Baseball’s system of sharing revenue between clubs was altered significantly in 1997. The arrangement progressively redistributes income from the highest toward the lowest revenue-generating clubs. The purpose of the new method was to alleviate growing disparity in revenue generation. However, under the progressive system the lowest revenue producing clubs bear the highest marginal tax rates, and theoretically problems of competitive imbalance may be amplified. Changes in talent distribution are observed by analyzing player mobility; an empirical model of player transfers is developed and tested. Confirmation is obtained that low revenue clubs acted on increased incentives to divest talent.