Managerial Reputation and the 'Endgame'
Journal of Economic Behavior & Organization, Vol. 42, Issue 2, June 2000
Posted: 25 Jul 2001
This paper examines endgame behavior, specifically the behavior of managers whose primary concern is to retain their jobs. Managers are taken to be of two types, good and bad, and only one manager is randomly selected as the firm's first-period manager. The manager unobservably chooses the mean and standard deviation (limited by a mean-standard deviation frontier) of the process that generates his observable performance. The good manager can choose higher values of the mean of the outcome-generating process, for given standard deviation, than the bad manager can. After the first of the two periods, the firm's owner must choose to retain or replace her manager based upon performance. In an endgame-perfect Bayesian equilibria of this reputation game, a good manager chooses a strategy with minimal standard deviation for a given mean while a bad manager chooses a strategy of maximal standard deviation for a given mean. Examples of this type of behavior drawn from finance and sports are given in the paper. The perfect Bayesian equilibria of this game also include conservative, reckless, and herd managerial behavior.
JEL Classification: C72
Suggested Citation: Suggested Citation