The hidden traps in decision making

Bad decisions can often be traced back to the way the decisions were made--the alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighted. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage the choices we make. John Hammond, Ralph Keeney, and Howard Raiffa examine eight psychological traps that are particularly likely to affect the way we make business decisions: The anchoring trap leads us to give disproportionate weight to the first information we receive. The statusquo trap biases us toward maintaining the current situation--even when better alternatives exist. The sunk-cost trap inclines us to perpetuate the mistakes of the past. The confirming-evidence trap leads us to seek out information supporting an existing predilection and to discount opposing information. The framing trap occurs when we misstate a problem, undermining the entire decision-making process. The overconfidence trap makes us overestimate the accuracy of our forecasts. The prudence trap leads us to be overcautious when we make estimates about uncertain events. And the recallability trap leads us to give undue weight to recent, dramatic events. The best way to avoid all the traps is awareness--forewarned is forearmed. But executives can also take other simple steps to protect themselves and their organizations from the various kinds of mental lapses. The authors show how to take action to ensure that important business decisions are sound and reliable.     

Debt, Leases, Taxes, and the Endogeneity of Corporate Tax Status

We provide evidence that corporate tax status is endogenous to financing decisions, which induces a spurious relation between measures of financial policy and many commonly used tax proxies. Using a forward-looking estimate of before-financing corporate marginal tax rates, we document a negative relation between operating leases and tax rates, and a positive relation between debt levels and tax rates. This is the first unambiguous evidence supporting the hypothesis that low tax rate firms lease more, and have lower debt levels, than high tax rate firms.     

When Stress Frustrates and When It Does Not: Configural Models of Frustrated versus Mellow Salespeople

The purpose of this study is to elucidate the stress–strain relationship by examining compound causes of frustration in the workplace. Drawing on configuration theory, this article describes stress patterns, that is, configurations of role stressors and social stressors, and underlying frustration and its negation, that is, mellowness. In addition, this article describes potential sources of such frustration‐stimulating stress patterns by examining constellations of employee and task characteristics. Based on a sample of 118 salespeople, the authors analyze the data using fuzzy‐set Qualitative Comparative Analysis—an analytic method pertinent to describing configurational patterns of causal factors. The findings from this study indicate the coexistence of alternative patterns of stressors for frustration. In addition, the findings show that configurational patterns for frustrated salespeople are quite different from those characterizing mellow salespeople. In summary, knowledge of these constellations of stressors helps sales managers detect conditions that frustrate, and develop strategies to diminish these conditions in order to improve sales force performance.     

An analysis of Japanese earnings forecast revisions with application to seasoned equity offerings

Using the bootstrap method, we explore the characteristics of revisions in Japanese earnings forecast data. We find that forecast revisions exhibit a downward trend over time as the actual earnings announcement date approaches, and are serially correlated with three significant lags. Using these characteristics we develop a model to estimate abnormal forecast revisions, and illustrate the model's use with a sample of Japanese companies announcing seasoned equity offerings (SEOs). In contrast to results obtained by studies using American data, our findings indicate significant positive upward revisions when Japanese firms announce an SEO.     

Trends and cycles of the internet evolution and worldwide impacts

In this paper we present a quantitative analysis of the evolution of some Internet and ICT evolution indicators. It focuses on the number of Internet hosts, the Internet penetration index, the ICT development index and the software/protocols development. In addition, we analyzed the series of most impacting events building up the Internet along the last fifty years. These analyses were carried out using the multi-logistic procedure recently proposed by the authors. Our results for hosts counting, penetration index and software/protocols development are compatible with the onset of some radical changes in the Internet technology to be currently underway and we forecast new growth rate peaks to occur by 2015. The software/protocols were found to having been powered by bursts of creativity with periods of the order of the Kuznets and Kondratiev economic cycles. Similar conclusions were drawn from the series of main events building up the Internet. Despite the clear signs of worldwide improvement in the ICT infrastructure and usage between 2002 and 2007 obtained from the ICT development index, its cross-correlation with the human development index (HDI) revealed the presence of a group of countries whose improvements in the operational ICT index are disconnected from their corresponding HDI improvements.     

Increased coordination in public transport—which mechanisms are available?

After several years of New Public Management reforms within public transport, coordination seems to receive increased attention. With examples of actual as well as suggested changes taken from Denmark, Sweden and the UK the aim of the article is to analyse and classify the mechanisms utilized and suggested to increase coordination between core stakeholders within passenger railway services and bus services. Four distinctive mechanisms of coordination are suggested, namely organisational coordination, contractual coordination, partnership coordination and discursive coordination. Each coordination mechanism has its strengths and failures. The article also debates to what extent the mechanisms conflict with three core characteristics of New Public Management: Unbundling of the public sector into corporatized units; more contract-based competitive provision; and greater emphasis on output controls.