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

37 Pages Posted: 12 Aug 2015

See all articles by Bradley R. Staats

Bradley R. Staats

University of North Carolina Kenan-Flagler Business School

Diwas Singh KC

Emory University - Goizueta Business School

Francesca Gino

Harvard Business School

Date Written: August 10, 2015

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.

Keywords: Behavioral Operations, Egocentric Bias, Experience, Healthcare Operations

Suggested Citation

Staats, Bradley R. and KC, Diwas Singh and Gino, Francesca, Blinded by Experience: Prior Experience, Negative News and Belief Updating (August 10, 2015). Harvard Business School NOM Unit Working Paper No. 16-015. Available at SSRN: https://ssrn.com/abstract=2642369 or http://dx.doi.org/10.2139/ssrn.2642369

Bradley R. Staats

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building, CB#3490
Chapel Hill, NC 27599
United States

Diwas Singh KC

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Francesca Gino (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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