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      Blinded by Experience: Prior Experience, Negative News and Belief Updating
      08 Sep 2015Working Paper Summaries

      Blinded by Experience: Prior Experience, Negative News and Belief Updating

      by Bradley R. Staats, KC Diwas and Francesca Gino
      Theoretical models in operations management assume that decision makers update their beliefs as new information emerges. This paper investigates this process in the field and the lab. Findings show that although individuals do respond to negative news, the rate at which they do so is influenced by their own experience, peers’ experience, and their interaction. Addressing these biases is important for everyday decision makers and operating managers involved in system design as well as for scholars in the development of analytical models.
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      Author Abstract

      Traditional models of operations management involve dynamic decision making assuming optimal (Bayesian) updating. However, behavioral theory suggests that individuals exhibit bias in their beliefs and decisions. We conduct both a field study and two laboratory studies to examine the phenomena in the context of health. In particular, we examine how an individual's prior experiences and the experiences of those around them alter the operational decisions that the individual makes. We draw on an exogenous announcement of negative news by the Food and Drug Administration (FDA) and explore how this affects an operational decision—production tool choice—of interventional cardiologists deciding between two types of cardiac stents. Analyzing 147,000 choices over 6 years, we find that individuals do respond to negative news by using the focal production tool less often. However, we find that both individual's own experience and others' experience alter their responses in predictable ways. Moreover, although individual and other experience act as substitutes prior to negative news, the two types of experience act as complements following the negative announcement—leading to even greater use of the same production tool. Two controlled lab studies replicate our main findings and show that behavioral biases, not rational expectations, drive the effect. Our research contributes not only to operations management research, but also to the practice of healthcare and operations more generally.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: August 2015
      • HBS Working Paper Number: 16-015
      • Faculty Unit(s): Negotiation, Organizations & Markets
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      Francesca Gino
      Francesca Gino
      Tandon Family Professor of Business Administration
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