Natalia Karelaia

Heuristic and Linear Models of Judgment: Matching Rules and Environments.

Much research has highlighted incoherent implications of judgmental heuristics, yet other findings have demonstrated high correspondence between predictions and outcomes. At the same time, judgment has been well modeled in the form of as if linear models. Accepting the probabilistic nature of the environment, the authors use statistical tools to model how the performance of heuristic rules varies as a function of environmental characteristics. They further characterize the human use of linear models by exploring effects of different levels of cognitive ability. They illustrate with both theoretical analyses and simulations. Results are linked to the empirical literature by a meta-analysis of lens model studies. Using the same tasks, the authors estimate the performance of both heuristics and humans where the latter are assumed to use linear models. Their results emphasize that judgmental accuracy depends on matching characteristics of rules and environments and highlight the trade-off between using linear models and heuristics. Whereas the former can be cognitively demanding, the latter are simple to implement. However, heuristics require knowledge to indicate when they should be used.

Entrepreneurial Success and Failure: Confidence and Fallible Judgment

Excess entry—or the high failure rate of market entry decisions—is often attributed to overconfidence exhibited by entrepreneurs. Assuming that these decisions depend on assessments of business opportunities, we model boundedly rational entrepreneurs and show analytically that, whereas excess entry is an inevitable consequence of imperfect judgment, it does not necessarily imply overconfidence. Indeed, judgmental fallibility can lead to excess entry even when all potential entrepreneurs are underconfident. We further demonstrate that, as a group, individuals who decide to start a new business exhibit more confidence than those who do not and that successful entrants are less confident than failures. Our results therefore question general claims that overconfidence leads to excess entry. We conclude by emphasizing the need to understand the role of judgmental fallibility in producing economic outcomes and implications for both venture capitalists and the training of entrepreneurs.

Regions of Rationality: Maps for Bounded Agents

An important problem in descriptive and prescriptive research in decision making is to identify “regions of rationality,” i.e., the areas for which heuristics are and are not effective. To map the contours of such regions, we derive probabilities that heuristics identify the best of m alternatives (m ≥ 2) characterized by k attributes or cues (k ≥ 1). The heuristics include a single variable (lexicographic), variations of elimination-by-aspects, equal weighting, hybrids of the preceding, and models exploiting dominance. We use 20 simulated and 4 empirical data sets for illustration. We further provide an overview by regressing heuristic performance on factors characterizing environments. Overall, “sensible” heuristics generally yield similar choices in many environments. However, selection of the appropriate heuristic can be important in some regions (e.g., if there is low intercorrelation among attributes or cues). Because our work assumes a hit-or-miss decision criterion, we conclude by outlining extensions for exploring the effects of different loss functions.

When should I quit? Gender differences in exiting competitions

We study gender differences in exiting competitive environments by exploiting the “naturalistic experiment” of a TV game show where participants were self-selected and there were no gender-specific constraints or discrimination. In multiple rounds, contestants answer general knowledge questions privately. One participant is eliminated or leaves voluntarily at the end of each round. Women earn 40% less than men and exit the game prematurely at a faster rate, but especially when in a minority. This latter result highlights the importance of structural arrangements in organizations that interact with behavior to maintain “glass ceilings” and explains the differential gender-related risk attitudes observed.

When Deviant Leaders are Punished more than Non-leaders: The Role of Deviance Severity

Evaluations of workplace deviant behavior are often biased by the personal characteristics of both deviants and sanctioners. In this paper, we focus on the characteristics of deviants and investigate the conditions under which sanctioners are more lenient towards deviants of high social status than lowstatus wrongdoers. We experimentally test the hypothesis that the severity of misbehavior determines the strength of punishment recommended for highas compared to low-status wrongdoers (Studies 1 and 2). Results supported the hypothesized interactive effect of severity and deviant status on recommended punishments. For work-related transgressions of low severity, high status “shields” the deviant from harsh evaluations and sanctions. However, for transgressions of high severity, this effect reverses and social status becomes a liability. Sanctions are in fact the strongest for high-status perpetrators committing serious work-related transgressions. The liability effect of status in such cases is mediated by the perceived betrayal of the implicit social exchange between the organization and the status-holder (Study 3). The perceived betrayal reaches its highest level for highstatus actors engaged in serious workplace misbehaviors, thereby increasing the sanctioner’s disapproval and recommended punishment. 181 words.

Under-Achievement and the Glass Ceiling: Evidence from a TV Game Show

We use a Colombian TV game show to test gender differences in competitive behavior where there is no opportunity for discrimination and females face no genderspecific external constraints. Each game started with six contestants who had to answer general knowledge questions in private. There were five rounds of questions and, at the end of each, one participant was eliminated. Despite equality in starting numbers, women earn less than men and exit the game at a faster rate. In particular, there are more voluntary withdrawals by women than men. We draw an analogy between the game and the process by which employees rise through the levels of a corporation. As such, we note that “glass ceilings” may result, in part, from women’s own behavior and this raises the issue of how women are socialized to behave. At the same time, our results illustrate that maintaining and promoting gender diversity at the lower/middle ranks of organizations is necessary to obtain gender diversity at the top.

Skill, Luck, Overconfidence, and Risk Taking

In most naturally occurring situations, success depends on both skill and chance. We compare experimental market entry decisions where payoffs depend on skill alone and combinations of skill and luck. We find more risk taking with skill and luck as opposed to skill alone, particularly for males, and little overconfidence. Our data support an explanation based on differential attitudes toward luck by those whose self-assessed skills are low and high. Making luck more important induces greater optimism for the former, while the latter maintain a belief that high levels of skill are sufficient to overcome the vagaries of chance.

Uncertainty, Skill, and Analysts' Dynamic Forecasting Behavior

We study the risk-taking behavior of stock analysts under varying market conditions. We examine how the risk analysts take by providing bold forecasts that deviate from consensus depends on the degree of uncertainty in the environment as well as the analysts’ skill level. We provide evidence that low-skill analysts become significantly bolder, hence taking more risk, and significantly less accurate when market uncertainty increases. These findings are consistent with previous experimental results that show that skill levels moderate differential attitudes towards uncertainty. We further provide evidence that the difference in an analyst’s boldness between times of low and high uncertainty is a signal of the analyst’s skill that predicts future forecasting accuracy over and above standard skill measures such as past forecasting accuracy.

On Heuristic and Linear Models of Judgment: Mapping the Demand for Knowledge

Research on judgment and decision making presents a confusing picture of human abilities. For example, much research has emphasized the dysfunctional aspects of judgmental heuristics, and yet, other findings suggest that these can be highly effective. A further line of research has modeled judgment as resulting from “as if” linear models. This paper illuminates the distinctions in these approaches by providing a common analytical framework based on the central theoretical premise that understanding human performance requires specifying how characteristics of the decision rules people use interact with the demands of the tasks they face. Our work synthesizes the analytical tools of “lens model” research with novel methodology developed to specify the effectiveness of heuristics in different environments and allows direct comparisons between the different approaches. We illustrate with both theoretical analyses and simulations. We further link our results to the empirical literature by a meta-analysis of lens model studies and estimate both human and heuristic performance in the same tasks. Our results highlight the trade-off between linear models and heuristics. Whereas the former are cognitively demanding, the latter are simple to use. However, they require knowledge – and thus “maps” – of when and which heuristic to employ.

One Person in the Battlefield is Not a Warrior: Self-Construal, Perceived Ability to Make a Difference, and Socially Responsible Behavior

We suggest that cultivating an individuals connectedness to others promotes socially responsible behavior both directly and indirectly – through increased perceived ability to make a difference. Individuals whose interdependent self is more prominent feel they have more of an impact on larger scale societal outcomes and, therefore, engage more in socially responsible behaviors than do individuals whose independent self is more prominent. We test these hypotheses in two experiments in which participants make financial contributions or exert an effort for a social cause. In a survey, we find that perceived effectiveness mediates the effect of self-construal on socially responsible consumption.