Decision Science News

2005 ANNUAL MEETING OF THE SOCIETY FOR JUDGMENT AND DECISION MAKING CALL FOR ABSTRACTS:

The Society for Judgment and Decision Making (SJDM) invites abstracts for symposia, oral presentations, and posters on any interesting topic related to judgment and decision-making. Completed manuscripts are not required.

LOCATION, DATES, AND PROGRAM:
SJDM’s annual conference will be held at the Sheraton Centre in Toronto, ON, Canada, from November 12-14, 2005. As in 2004, we’ve added a full day (Saturday) to the schedule to make room for more presentations and for two keynote speakers:

Keynote speaker #1: Michael Posner, Professor Emeritus of Psychology, University of Oregon, and author of many path-breaking articles on neural mechanisms and structures underlying selective attention.

Keynote speaker #2: Xg4k%h Sh8&v@!, Due to heightened security, we cannot provide the name of the second keynote speaker at this point.

SUBMISSIONS:
The deadline for submissions is July 15, 2005.
Submissions for symposia, oral presentations, and posters should be made through the SJDM website at http://sql.sjdm.org. Technical questions can be addressed to the Webmaster, Alan Schwartz, at www@sjdm.org. All other questions can be addressed to Judy Lin, at judylin@mit.edu.

ELIGIBILITY:
At least one author of each presentation must be a member of SJDM. Joining at the time of submission will satisfy this requirement. A membership form may be downloaded from the SJDM website at http:/ www.sjdm.org. An individual may give only one talk (podium presentation) and present only one poster, but may be a co-author on multiple talks and/or posters.

AWARDS:
The Best Student Poster Award is given for the best poster presentation whose first author is a student member of SJDM.

The Jane Beattie Travel Memorial Scholarship subsidizes travel to the United States for scholarly pursuits related to JDM research, including attendance of the annual meeting. Further details regarding these awards are available at http://www.sjdm.org.

PROGRAM COMMITTEE:
Craig Fox (institutional memory)
Dan Ariely (program chair)
Derek Koehler (conference coordinator)
Ellen Peters (speaker coordinator)
George Wu (poster chair)

BEHAVIORAL ECONOMICS:

“Behavioral economics [applies] scientific research on human and social cognitive and emotional [patterns] to better understand economic decisions and how they affect market prices, returns and the allocation of resources. The fields are primarily concerned with the rationality, or lack thereof, of economic agents. Behavioral models typically integrate insights from psychology with neo-classical economic theory… Behavioral analyses are mostly concerned with the effects of market decisions, but also those of public choice…

At the outset behavioral economics […] theories were developed almost exclusively from experimental observations and survey responses, though in more recent times real world data has taken a more prominent position. fMRI has also been used to determine which areas of the brain are active during various steps of economic decision making. Experiments simulating market situations such as stock market trading and auctions are seen as particularly useful as they can be used to isolate the effect of a particular [heuristic] upon behavior; observed market behavior can typically be explained in a number of ways, carefully designed experiments can help narrow the range of plausible explanations. Experiments are designed to be incentive compatible, with binding transactions involving real money [as] the norm. ” (from Wikipedia)

BEHAVIORAL ECONOMICS ARTICLES:

*Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving by Richard H. Thaler; University of Chicago and NBER and Shlomo Benartzi; UCLA Anderson

*Behavioral Economics by Sendhil Mullainathan; MIT and NBER and Richard H. Thaler; University of Chicago and NBER

*Behavioral Economics and Institutional Innovation by Robert J. Shiller; Yale University

*Amos Tversky and the Ascent of Behavioral Economics by David Laibson; Harvard University and Richard Zeckhauser; Harvard University

NEUROECONOMICS:

Neuroeconomics is a multidisciplinary research field incorporating neuroscience, economics, and psychology aimed at developing an understanding of how we make choices. It looks at the brain when we evaluate decisions, categorize risks and rewards, and when we interact with others. (from Wikipedia)

“Neuroeconomics is an interdisciplinary research program with the goal of building a biological model of decision making in economic environments. Neuroeconomists ask, how does the embodied brain enable the mind (or groups of minds) to make economic decisions? By combining techniques from cognitive neuroscience and experimental economics we can now watch neural activity in real time, observe how this activity depends on the economic environment, and test hypotheses about how the emergent mind makes economic decisions. Neuroeconomics allows us to better understand both the wide range of heterogeneity in human behavior, and the role of institutions as ordered extensions of our minds.” (from the Neuroeconomics Explained post from professor Kevin McCabe’s Weblog)

RECENT NEUROECONOMICS ARTICLES:

* From The New York Times: Brain Experts Now Follow the Money:

“People are efficient, rational beings who tirelessly act in their own self-interest. They make financial decisions based on reason, not emotion. And naturally, most save money for that proverbial rainy day. Right?… Well, no. In making financial decisions, people are regularly influenced by gut feelings and intuitions. They cooperate with total strangers, gamble away the family paycheck and squander their savings on investments touted by known liars…

Such human frailties may seem far too complicated and unpredictable to fold into economic equations. But now many neuroscientists are beginning to argue that it is time to create a new field of study, called neuroeconomics…

To explore economic decision-making, researchers are scanning the brains of people as they engage in a variety of games designed by experimental economists. The exercises are intended to make people anticipate what others will do or what others will infer from the person’s own actions. These researchers are busy scanning the brains of people as they make economic decisions, barter, compete, cooperate, defect, punish, engage in auctions, gamble and calculate their next economic moves. Based on their understanding of how fluctuations in neurons and brain chemicals drive those behaviors, the neuroscientists are expressing their findings in differential equations and other mathematical language beloved by economists…

The brain needs a way to compare and evaluate objects, people, events, memories, internal states and the perceived needs of others so that it can make choices. It does so by assigning relative value to everything that happens. But instead of dollars and cents, the brain relies on the firing rates of a number of neurotransmitters — the chemicals, like dopamine, that transmit nerve impulses. Novelty, money, cocaine, a delicious meal and a beautiful face all activate dopamine circuits to varying degrees; exactly how much dopamine an individual generates in response to a particular reward is calibrated by past experience and by one’s own biological makeup.”

* From Business Week: Why Does logic often takes a backseat in making decisons?: This question may suggest that the study of neuroeconomics may topple the notion of rational decision-making.

“The National Hockey League and its players wrangle over a salary cap. The impasse causes the season to be canceled. Everybody loses. What went wrong?

According to the new science of neuroeconomics, the explanation might lie inside the brains of the negotiators. Not in the prefrontal cortex, where people rationally weigh pros and cons, but deep inside, where powerful emotions arise. Brain scans show that when people feel they’re being treated unfairly, a small area called the anterior insula lights up, engendering the same disgust that people get from, say, smelling a skunk. That overwhelms the deliberations of the prefrontal cortex. With primitive brain functions so powerful, it’s no wonder that economic transactions often go awry. “In some ways, modern economic life for humans is like a monkey driving a car,” says Colin F. Camerer, an economist at California Institute of Technology.”

* From The Princeton Weekly Bulletin: Take it or Leave It: Brain imaging study reveals interplay of thought and emotion in economic decisions. By Steven Schultz

* From PLoS Biology: A Neuroeconomics Approach to Inferring Utility Functions in Sensorimotor Control:
Economists use the concept of a utility function, which increases with increasing desirability of the outcome, to characterize human decision-making about physical movement.

* From Science: Separate Neural Systems Value Immediate and Delayed Monetary rewards: by Samuel McClure, David Laibson, George Loewenstein and Jonathan Cohen. Are the two birds in the bush a better choice than the one in your hand?

*From Science: The Involvement of the Orbitofrontal Cortex in the experience of regret: Neural responses associated with regret in gambling tasks.

POST-DOCTORAL RESEARCHER – CENTER FOR RESEARCH ON ENVIRONMENTAL DECISIONS, COLUMBIA UNIVERSITY

The Center for Research on Environmental Decisions (CRED) at Columbia University is seeking an outstanding researcher for a one-year post-doctoral position to start in the Fall of 2005, renewable for a second year. The post-doc will carry out research and coordinate lab activities.

CRED is directed by Professors Elke Weber, David Krantz, Roberta Miller, and Kenny Broad and includes researchers from psychology, management, economics, engineering, climate science, anthropology, and history. CRED studies individual and group decision making under climate uncertainty and, more broadly, decision making in the face of environmental risk. While research is conducted both in the lab and in various countries around the world, the post-doc will be responsible for lab projects. For more information please visit www.cred.columbia.edu.

Qualifications: Candidates must have a Ph.D. in a discipline relevant to decision making. May 2005 graduates will be considered for the position. Applicants should be interested in applied research that is ultimately aimed at improving stakeholders’ decision making. Being highly organized is a must; being comfortable running a Linux Web server and having other excellent computer skills would be a definite advantage.

To apply, please send a CV, two letters of recommendation, one writing sample, and a cover letter describing your research interests and expertise carrying out experimental research. Review of applications will begin mid-April and continue until the position is filled.

Applications should be sent to:
Sabine Marx, sm2234 (a) columbia DOT edu
Sabine Marx, Associate Director
Center for Research on Environmental Decisions (CRED)
Columbia University
406 Schermerhorn Hall
1190 Amsterdam Ave
New York, NY 10027

Columbia University is an Affirmative Action/Equal Opportunity Employer.

ASSISTANT PROFESSORSHIP AT TILBURG UNIVERSITY, THE NETHERLANDS

FACULTY OF SOCIAL SCIENCES
Tilburg University is a modern, specialized university. The teaching and research of the Faculty of the Social Sciences are organized around the themes of Health, Organization, and Relations between State, Citizen, and Society. The faculty’s inspiring working environment challenges its workers to realize their ambitions; involvement and cooperation are essential to achieve this.

DEPARTMENT OF PSYCHOLOGY AND SOCIETY / SOCIAL PSYCHOLOGY GROUP
The teaching and research at the Department of Psychology and Society focus on the influence of the social environment on the behaviour of individuals. This theme is approached from economic, organizational, social, and cultural perspectives. At present, the social psychology group are David de Cremer, Eric Igou, Thijs Poppe, Marcel Zeelenberg, and 7 PhD-students. Currently we are looking for a colleague for the position of: ASSISTANT PROFESSOR IN SOCIAL/ECONOMIC PSYCHOLOGY (M/F), 1,0 fte, TENURE TRACK POSITION, vacancy number: 400.05.01

JOB DESCRIPTION
As an Assistant Professor (lecturer) you will teach in our Bsc and Msc programs and in our graduate program, and you will supervise students at all levels (in internal and external research projects). Your teaching will be primarily in the area of consumer behavior, behavioral decision making and economic psychology. You will do basic research and have some administrative duties. We are looking for a strong candidate with interests in consumer/economic psychology, individual and social decision-making, and/or the psychology of emotion.

JOB REQUIREMENTS
The ideal candidate has a Ph.D. in psychology or decision sciences and experience with experimental and/or applied research. He or she has a proven record of research in one of the fields mentioned above and is committed to excellence of teaching. Moreover, the candidate is ambitious, able to work independently but willing to cooperate with the colleagues in the social psychology group. Excellent communicative skills are indispensable for this position.

TERMS OF EMPLOYMENT
Tilburg University belongs to the top of the best employers of the Netherlands and is known for her good terms of employment. The salary will be determined according to the job ranking system of the University (in Dutch: universitair functie-ordenen UFO). You will be offered a contract for a period of 4 years. After 4 years a tenure position is possible, depending on your job performance.

INFORMATION AND APPLICATION
You can find more information about the University of Tilburg and the Department of Psychology and Society on: www.tilburguniversity.nl. You can also contact prof. dr. Marcel Zeelenberg (tel.+31-13-466 8276 or m.zeelenberg at uvt dot nl). Your application, accompanied by a CV, a statement of research and teaching interests, one or more published
or unpublished papers, and the names of at least three references, can be sent until April 15, 2005 to: M.J. Bassie, Managing Director of the Faculty of Social and Behavioural Sciences, Postbus 90153, 5000 LE, Tilburg or pz-fsw@uvt.nl (indicating the vacancy number 400.05.01).

FULL PROFESSOR OF MARKETING; Vrije Universiteit Amsterdam

The Vrije Universiteit Amsterdam, The Netherlands, invites applications for the position of a Full (tenured) Professor of Marketing in the Department of Marketing at the Faculty of Economics and Business Administration.

THE VRIJE UNIVERSITEIT AMSTERDAM
Amsterdam, the capital of the Netherlands, has been a renowned cultural, scientific and commercial center for many centuries. It was here, in 1880, that the Vrije Universiteit first opened its doors to students. The VU (www.vu.nl) aims to be inspiring, innovative and involved. It now comprises twelve faculties and has teaching facilities for 17,000 students. The university campus and university hospital are situated in the south-western part of Amsterdam, one of the most dynamic and fast-growing business districts in the Netherlands. The international airport of Schiphol-Amsterdam is just 8 minutes away by train. Both the research and the educational programs of the Vrije Universiteit are of a high quality (the work of different research groups have been evaluated to be of world class; the educational programs of Economics and Business Administration have been rated by students among the best in the country).

THE MARKETING DEPARTMENT
The Department of Marketing is a young, ambitious and expanding group oriented towards the international marketing community. Currently, the Department has about 10 faculty members, 5 adjunct faculty and 4 Ph.D. students. Although the Department hosts different specialization areas within Marketing, we focus particularly on Marketing Strategy. The Department is committed to creating a stimulating working environment. We strive for high quality in both research and educational programs. We offer a broad scope of marketing courses, including a full-time Master of Science in Marketing program (fully in English). Our research program especially focuses on topics within the area of marketing strategy, such as innovation and customer relationships. For more information, see: www.feweb.vu.nl/marketing

THE CANDIDATE
The Department of Marketing seeks to further strengthen its position. We are therefore looking for candidates with a Ph.D. in Marketing or related areas and who are enthusiastic about contributing to the ambitious goals of the Department. Especially, we seek a candidate who is committed to excellence in both research and education. This should be visible from the candidate’s high quality past performance, such as an international research profile and good teaching evaluations. Both applicants with demonstrable potential for high quality research as well as senior candidates with high quality past performance are welcome to reflect. Given the specialization area of the Marketing department, we favor candidates who are especially interested in strategic issues in marketing. Also, applicants should have a positive attitude towards inspiring junior faculty members and cooperation in joint research projects. The teaching load will be limited. Senior faculty members will share the administrative tasks. Candidates do not need to have knowledge of the Dutch language (passive knowledge of the language after 2 years is required), but should be fluent in English.

INFORMATION/APPLICATION
We offer a stimulating working environment with many opportunities for growth and new initiatives. Salaries are negotiable and include additional benefits.

For information, please contact Ruud Frambach, Chair of the MarketingDepartment (see for contact details below). Candidates who are interested to apply for this position are requested to send a detailed resume containing educational data, a list of publications, teaching experience and evaluations, administrative experience as well as any other information that may be relevant for the position to the address below. Applications can be submitted by regular or electronic mail to:

Prof. dr. Ruud T. Frambach, Chair
Department of Marketing
Vrije Universiteit Amsterdam
Faculty of Economics and Business Administration
De Boelelaan 1105
1081 HV Amsterdam
The Netherlands
Phone: +31 20 598 6002
Fax: +31 20 598 6005
Email: rframbach at feweb.vu.nl

CONSUMER COGNITION AND PRICING IN THE 9’S IN OLIGOPOLISTIC MARKETS.

Marketing research has confirmed what many know, that a large number of goods are priced to the end in a 9, for example hamburgers for 99 cents or shoes for 49 dollars, what is referred to as odd-pricing or psychological pricing. With a look at a spreadsheet analysis of both wholesale and retail prices, you will see that wholesale prices (when looking at the last two right digits) are distributed very evenly over the range of 00 to 99, but when you look at retail pricing you see the obvious, that many prices end with 09, 19, … , 99.

Do consumers do this out of irrationality or only when they expect the time cost of fully calculating the exact price to exceed the expected loss caused by the slightly erroneous but higher price paid by failing to accurately incorporate the rightmost digits? What kind of effect does pricing in the 9’s have on a market where there may be some non-strict equilibrium found where even or non-9 price ending occurs? A recent article out of The Harvard Institute for Economic Research (HIER) investigates what effect this phenomena may have on oligopolistic markets and attempts to build a model of the kinds of markets we may expect to result from pricing in the 9’s.

ABSTRACT:

“The paper fully characterizes the Bertrand equilibria of oligopolistic markets where consumers may ignore the last (i.e. the right-most) digits of prices. Consumers, in this model, do not do this reflexively or out of irrationality, but only when they expect the time cost of acquiring full cognizance of the exact price to exceed the expected loss caused by the slightly erroneous amounts that is likely to be purchased or the slightly higher price that may be paid by virtue of ignoring the information concerning the last digits of prices. It is shown that in this setting there will always exist firms that set prices that end in nine though there may also be some (non-strict) equilibria where a non-nine price ending occurs. It is shown that all firms earn positive profits even in Bertrand equilibria. The model helps us understand in what kinds of markets we are most likely to encounter pricing in the 9’s.”

QUOTES:

“Given the limits of the human brain, it is reasonable to assume human beings will not be fully informed. When a person goes through a supermarket buying goods, is it worthwhile for him to study and take in the price information of each product in full? It is not evident that the answer to this will be yes, contrary to what early textbook models of economics suggested. Indeed it may not be rational to take in so much information.5 If, for instance, he looked only at the dollar part of the prices and took his purchase decisions based on that, he would make a few wrong decisions, true, but the time saved by using this strategy may be well worth that little loss. I shall later model the circumstances where such time-saving is worthwhile.”

“The model predicts that prices will generally end in 9s but in some markets there will be two modal price endings, one of which will invariably be 9. It is interesting to note that the asymmetric equilibrium in which the non-9 ending occurs would exist only if the indifference axiom holds. It is arguable that for products where people buy large amounts of some commodity or agree to a per unit price and then buy the commodity or service over a long period of time the indifference axiom is less likely to be satisfied. In such cases a small price difference translates into a large loss or gain for the buyer and hence consumers are more likely to take cognizance of the exact price. Hence for these kinds of goods multiple prices are less likely to occur in the same market.”

“There is a large literature in psychology that illustrates how human beings often use simple rules of thumb to make decisions, instead of collecting all relevant information and then making decisions; and how these “fast and frugal” rules may in fact turn out to be reasonable (Gigerenzer and Goldstein, 1996; Gigerenzer and Selten, 2001). If for instance, people were given pairs of cities and asked which of each pair had the higher population and people named the city they were more familiar with*, Goldstein and Gigerenzer (1999) showed that they would be right significantly more often than if they chose the answer at random. Given that the collection of information can be costly in terms of time and money, for certain purposes the use of this heuristic may be the rational course. It is this general idea that I shall now use in the context of consumer decision-making concerning what to buy.”

* It would be more correct to say “the city they recognized” – Ed.

“Unlike in the model of monopoly discussed in Basu (1997), we find that firms benefit from this phenomenon of pricing in the nines. This enables (sophisticated) Bertrand oligopolists to sustain a price above the marginal cost (and even above the prices that could prevail in the standard Bertrand oligopoly model with an exogenously fixed smallest unit of change). Also, unlike in a monopoly, some non-9 endings are now possible in equilibrium.”

“Another natural way to extend the model is to suppose that, if a person is planning a very large purchase, he takes cognizance of the exact per-unit price of the product since even a tiny difference in per-unit price could make a big difference to his cost. While I have not modeled this formally here, it is reasonable to expect that in such situations the indifference axiom discussed above will be violated and so we will invariably see only one price for each good. If we go a step further and introduce the idea of ‘cautious behavior’ on the part of consumers, which is defined behavior that takes into account the possibility of ‘trembles’ in prices whether or not there exists any actual price variability in the market, then it is likely that the dominance of 9 endings will break down. For goods, where the consumer places large orders (that is, several multiples of the unit) on the basis of a per-unit price, there will be a unique price but there will be no special reason for this to have a 9-ending. Hence, for goods like cement, house paint, phone calls and long-term lawn-mowing contracts we will be less likely to see nine price endings. By the same kind of reasoning we would expect to see a wider use of prices ending in 9 in the retail market, where small quantities of goods are purchased, or in the market for perishable goods, as opposed to, for instance, the wholesale market.”

“…instead of assuming consumer irrationality and consumer psychological delusion, if we simply recognized that consumers have limited time for decision-making and limited brain capacity and they act rationally subject to these limitations, then we can get results which elude the standard literature on industrial pricing and mimic some of the results which behavioral economics derives only by assuming consumer irrationality. This is not to suggest that consumers are never irrational but simply that we must not be too hasty in jumping to the conclusion of irrationality either.”

ABOUT THE AUTHOR:

Kaushik Basu

Kaushik Basu is a Professor of Economics and the Carl Marks Professor of International Studies at The Department of Economics, Cornell University. He received his PhD from The London School of Economics in 1976. His expertise includes Economic development, economic theory, industrial organization and political economy. His research interests include economic development, economic theory, industrial organization, and political economy. He has held visiting positions at CORE (Louvain-la-Neuve, Belgium), the Institute for Advanced Study (Princeton), and the London School of Economics, where he was a Distinguished Visitor in 1993. He also has been a Visiting Professor at Harvard University and Princeton University.

Kaushik Basu Homepage at Cornell University

THE 2005 EUROPEAN ASSOCIATION FOR CONSUMER RESEARCH (EACR) CONFERENCE

The seventh European ACR will take place June 15-18 in the second largest city in Sweden, Göteborg. The aim of the conference is to contribute to the development of consumption research by including a wide range of phenomena, perspectives and disciplines.

“We hope to create a conference together that will be rich in rewards both professionally and socially. We hope the conference will strengthen the ties between researchers who work within the field of consumption. We want to set the scene for a conference that makes use of the full potential of in-depth specialization as well as interdisciplinary cooperation. It is our hope that presentations and discussions will enhance our knowledge of consumption. Göteborg is the second largest city in Sweden located between the sea and the forest. We are sure that the weather will be at its best with long light evenings. You will be able to enjoy stimulating conversations with old friends and new acquaintances.”

From the EACR Homepage

The EACR welcomes researchers and doctoral students from universities all over the world. Registration is now open. Click here for more information.

The EACR 2005 Program Committee consists of:

*Eric Arnould, University of Nebraska-Lincoln, USA
*Russell W. Belk, University of Utah, USA
*Janet Borgerson, University of Exeter, United Kingdom
*Richard Elliot, Warwick Business School, The University of Warwick, United Kingdom
*Asim Fuat Firat, University of Southern Denmark- Odense, Denmark
*Jim Gentry, University of Nebraska- Lincoln, USA
*Margaret Hogg, Lancaster University, United Kingdom
*Robert Kozinets, Kellogg School of Management, USA
*Pauline Maclaran, De Montfort University, USA
*Lisa Penaloza, University of Colorado, USA
*Linda Price, University of Nebraska- Lincoln, USA
*Michael Saren University of Leicester, United Kingdom
*Alladi Venkatesh, University of California, USA & Stockholm School of Economics, Sweden

Doctoral Symposium:
Jonathan Schroeder – University of Exeter, United Kingdom

RESEARCHER POST WITH LAIBSON AT HARVARD

Laibson’s one of the smartest folks around and the salary is good even by postdoc standards.

“Professor David Laibson (Harvard University and the National Bureau of Economic Research) seeks an outstanding economics researcher who is willing to commit to work for two years as a full-time research assistant on a range of behavioral economics research projects, including half-time work on a textbook with a behavioral economics orientation. Annual compensation will be approximately $50,000. See here for examples of the kinds of research that will be undertaken. Applicants should have very strong grades, research experience, and training in statistics/econometrics. Interested individuals should immediately send an electronic course transcript, resume, cover letter, and writing sample to beshears at fas dot harvard dot edu.”

IMPROVING LEARNING AT UNIVERSITIES: WHO IS RESPONSIBLE?

Last Fall, Wharton Marketing professor J. Scott Armstrong wrote a letter to the Wall Street Journal about the failure of business schools to teach students to do such fundamental things as give effective oral presentations, write persuasive management reports, listen to others, conduct meetings, and use statistical procedures to analyze data. This letter generated responses from “alumni, faculty, recruiters, consultants and students,” spurring Armstrong to write a practical piece in the University of Pennsylvania Almanac Improving Learning at Universities: Who is Responsible?.

Armstrong argues the problem is not just based upon perception. Research has documented the failure of formal education to enable students to become more effective on the job or in other areas of their life. According to Armstrong, we have designed a system that convinces the majority of students that they are not responsible for their own learning. Possible causes of this misplaced responsibility are suggested. Armstrong concludes by proposing actions schools and universities can take.

QUOTE:
“Why is the educational system ineffective in teaching people to apply their knowledge? It is that we have designed a system that convinces most students that they are not responsible for their own learning. Surprisingly, the problem starts as soon as people are placed in groups. Zajonc’s (1965) review of social facilitation research, done on rats and students, found that when subjects observe the critical responses of others, their learning is inhibited. This led Zajonc to conclude, “students should study alone,” (He did not provide advice for rats). The presence of a teacher compounds the problem (Browne et. al. 1991; Tough 1982). Grading saps responsibility and thus inhibits learning (Condry 1977; Levine and Fasnacht 1974). Student evaluations of teachers lead to a further erosion of their responsibility because the students place the responsibility on the professor (Armstrong 1998; 2004b), not to mention that the evaluation process is viewed by some as a demoralizing and demeaning exercise for faculty (Gray & Bergmann 2003).”

ABOUT THE AUTHOR

J. Scott Armstrong is Professor of Marketing at The Wharton School of the University of Pennsylvania. His research interests include forecasting methods; strategic planning; survey research; research methods, scientific communication; educational methods; social responsibility in management; persuasion through advertising. He received his PhD in Management; Marketing (with work in applied statistics, social psychology, and economics); Ford Foundation Fellowship, from the Massachusetts Institute of Technology in 1968.

Selected Recent Publications

* Principles of Forecasting: A Handbook for Researchers and Practitioners. Kluwer Academic Publishers, 2001. Contributions from 40 authors, as well as the Forecasting Dictionary.

* Long-Range Forecasting: From Crystal Ball to Computer New York: Wiley Interscience, 1978; 7 printings of 1st Edition; 2nd Edition published 1985 (700 pages). The most frequently cited book on forecasting methods.

DOES FORMAL STRATEGIC PLANNING REALLY HELP?

J. Scott Armstrong released to the world this worthwhile essay today:

“Some experts recommend that firms should adopt a flexible (informal) approach to developing marketing strategy. Formal planning, they say, can be a straightjacket that harms performance, especially when there is much uncertainty and change. Research has shown this to be incorrect.

Not all approaches to formal planning are useful.

Consider Porter’s Five Forces, experience curves, mission statements, focus groups, SWOT, scenarios, and portfolio matrix methods like BCG. These methods are popular. Using Google, I searched for these terms plus the word “planning” and found from 940 sites for experience curves, to 2,330,000 for scenarios. However, I am unaware of any evidence that these procedures lead to better planning. On the contrary, there is evidence that some of these procedures are harmful to performance.

Some formal planning procedures do work.

To identify effective formal planning procedures, I reviewed research on corporate planning. This led to the development of a five-step formal planning process with explicit (written) procedures for:

1) determining the firm’s long-range objectives,

2) generating alternative strategies,

3) evaluating alternative strategies,

4) monitoring implementation and outcomes, and

5) gaining commitment from those who will be affected by the plan.

Laboratory studies with small groups show that use of each of these steps improves group performance.

But does this five-step process help in large organizations? To address this, I searched for comparative empirical research on corporate planning procedures in firms and other organizations. Some of these studies looked at performance (e.g., profits) after formal planning procedures were introduced. Some compared organizations that used these procedures with those that did not. Also, in an experimental study, organizations received funds for planning, but for half the organizations the funds were contingent on following the five-step planning process.

Overall, formal planning was more profitable in 20 studies (including the experimental study), and harmful in only 3 (there were 5 ties). What is remarkable about these results is that with the exception of the experimental study, none of the organizations followed all aspects of the formal planning process. In many cases, one might judge the implementation of the process as poor. And, of course, there were often factors other than the planning process that might affect performance.

Since completion of my reviews, I have become aware of 14 recent studies, and formal planning was superior in 13 of them. Thus, despite problems with implementation and assessment, formal planning was associated with better performance in nearly 80% of the 42 studies and poorer performance in fewer than 8% of them.

Formal planning works under some conditions.

These results are also remarkable because, judging from the research, formal planning is only expected to be useful for situations involving:

* Large changes, such as for mergers, or when new products are introduced, or when a firm makes major changes in its marketing,

* High uncertainty, such as when facing changes in the economy or changes in government regulations,

* High complexity, where different parts of an organization need to work together, or

* Inefficient markets, where prices do not provide signals.

Because these conditions are common, however, many organizations could use some or all of the five-step process to improve performance.

Few, if any, organizations use this five-step procedure for planning.

Descriptive studies of planning show that few organizations use aspects of this five-step procedure. I have never encountered an organization that uses all steps, so I would appreciate hearing about such organizations.

[The above findings have been described in a series of papers available in full text under “Strategy and Planning” at http://jscottarmstrong.com. Additional studies are summarized in George Boyne’s “Planning, Performance and Public Services,” Public Administration, 79 (2001), 73-88.]”