In Research for academia, Work in progress

We present a theory of price and quality decisions by a manager who is self-serving. In the theory, the firm emphasizes the price or quality of its product, but not both. Accounting for this choice of orientation, the self-serving manager credits success in the market to the dominant, “strategic” factor and blames failure on the other, as doing so is psychologically rewarding. However, biased attributions prompt biased responses, which damage future performance. The paper reports a series of experiments that support this logic and motivate our modeling effort. The model captures the phenomenon and clarifies the cost of the bias to the firm under different business conditions.