Are Managers Susceptible to the Ostrich Effect?

Abstract

Using data from an information provider in the cannabis industry, we observe that managers of retail dispensaries appear to suffer from the “ostrich effect”—the selective acquisition of news based on an expectation of the likely hedonic response (e.g., avoiding bad news to avoid psychological discomfort). Managers are more likely to acquire store and product performance information as its expected valence (i.e., its “goodness” versus “badness”) increases and revisit this information more as its actual valence increases. These relations are attenuated when managers can more easily attribute the performance to external factors, suggesting managers intuitively acquire good news they can take credit for and avoid bad news they must internalize. Managers’ information acquisition decisions also appear to have real effects—future product stock-outs are greater when managers avoid the information. Our results suggest that hedonic effects of information influence key information acquisition choices of managers.

Keywords: Ostrich effect, information avoidance, managerial decision-making

JEL Classification: M41, G31, G40