Browsing by Subject "Endowment effect"

This dissertation focuses on managerial decision making, and specifically explores conditions wherein managers may increase their propensity to escalate commitment towards a failing project. Escalation researchers (e.g. Schmidt and Calantone, 2002) have listed four classes of factors that may impact a manager's propensity to escalate commitment towards a failing project, and have called for research into how exactly these factors impact escalation. In this dissertation, we explore two such factors. The first factor relates to the characteristics of the decision process used by firms to evaluate the project. Here, for example, researchers have looked at whether the manager was also involved in making decisions about the project in a prior period, and Boulding, Morgan and Staelin (1997) have shown that such manager's positive beliefs about the project (formed in a prior period) make a manager more likely to escalate commitment. The second factor relates to project characteristics. Here, for example, researchers have looked at whether or not the project relates to a product that is perceived as new, and Schmidt and Calantone (2002) have shown that managers are more likely to escalate commitment towards a failing project relating to a new product.

The first dissertation essay uses three experiments to examine how a hitherto unexplored characteristic of the decision process might lead to increasing escalation of commitment. Specifically, building off research into the illusion of control, we examine whether the opportunity to use managerial skill during the decision process makes a manager more willing to escalate commitment towards a failing project. We find that whenever managers act on cues that cause them to think they can use their managerial skill to control some outside factor (even though in reality they cannot), managers overestimate their ability to "control the odds" related to this outside factor. Such beliefs feed forward and lead managers to make suboptimal decisions about the overall project.

The second dissertation essay looks at how project characteristics might make a manager more (or less) likely to escalate commitment towards a failing project. We explore this issue in the hitherto unexplored real options setting. Real options have emerged as an important part of marketing strategy, and have been used to structure new product alliances, value customers etc. We run a controlled experiment and we examine whether differences in option-structure (which is a project characteristic) impact the propensity to make suboptimal option-exercise decisions. We find that managers are more likely to make suboptimal option-exercise decisions in the case of put options (vis. call options), and - as predicted by the endowment effect literature - this increased propensity to make a suboptimal decision is mediated by/ explained by the psychological ownership construct.

Marketers have long looked for observables that could explain differences in consumer behavior. Initial attempts have centered on demographic factors, such as age, gender, and race. Although such variables are able to provide some useful information for segmentation (Bass, Tigert, and Longdale 1968), more recent studies have shown that variables that tap into consumers’ social classes and personal values have more predictive accuracy and also provide deeper insights into consumer behavior. I argue that one demographic construct, religion, merits further consideration as a factor that has a profound impact on consumer behavior. In this dissertation, I focus on two types of religious guidance that may influence consumer behaviors: religious teachings (being content with one’s belongings), and religious problem-solving styles (reliance on God).

Essay 1 focuses on the well-established endowment effect and introduces a new moderator (religious teachings on contentment) that influences both owner and buyers’ pricing behaviors. Through fifteen experiments, I demonstrate that when people are primed with religion or characterized by stronger religious beliefs, they tend to value their belongings more than people who are not primed with religion or who have weaker religious beliefs. These effects are caused by religious teachings on being content with one’s belongings, which lead to the overvaluation of one’s own possessions.

Essay 2 focuses on self-control behaviors, specifically healthy eating, and introduces a new moderator (God’s role in the decision-making process) that determines the relationship between religiosity and the healthiness of food choices. My findings demonstrate that consumers who indicate that they defer to God in their decision-making make unhealthier food choices as their religiosity increases. The opposite is true for consumers who rely entirely on themselves. Importantly, this relationship is mediated by the consumer’s consideration of future consequences. This essay provides an explanation to the existing mixed findings on the relationship between religiosity and obesity.