In Research for academia, Work in progress

This paper presents a theory of price and quality decisions by managers who are self-serving. In the theory, managers are self-serving in the sense that they exploit any ambiguity on the link between decisions and the market outcome to cast their firms in a positive light. The focus on price and quality stems from the observation that firms seldom approach a market emphasizing both factors. This norm matters because, in the absence of a clear account of performance, certain explanations are more gratifying than others are: the self-serving manager wants to credit success to the dominant factor and blame failure on the other. We document this phenomenon in experiments with samples of experienced professionals and develop a model to quantify the cost to the firm.