Three tips of turning biases into opportunities

You are leading one of the most successful corporations in our time. I study how great companies fail. One shared feature of the failed companies I studied is that their leaders could not overcome some systematic biases in their decision-making. Worse, they were overconfident in their decisions and their errors are not challenged. Here are three tips for helping you to learn from three damaging mistakes they made for improving your decisions

Strategizing with others' misperceptions of luck in extreme performances

Research suggests that people tend to be fooled by randomness and mistake luck for skill, particularly when evaluating extreme performances. I argue that these predictable mistakes can be translated into a source of competitive advantage: informed managers can exploit others’ misperceptions of luck, such as by arbitraging in strategic factor markets. I then discuss limits to this arbitrage strategy due to social constraints: stakeholders may not be able to accurately evaluate performances and may disapprove atypical strategic activities, suggesting that only strategists who are less sensitive to this “lemon problem” can take advantage of the resulting arbitrage opportunities. I conclude with a flowchart about when strategists should pursue this alternative source of strategic opportunity that turns the well- known biases on their head

Why do firms fail to engage diversity? A behavioral strategy perspective

The persistent failure of organizations to engage diversity—to employ a diverse workforce and fully realize its potential—is puzzling, as it creates labor-market inefficiencies and untapped opportunities. Addressing this puzzle from a behavioral strategy as arbitrage perspective, this paper argues that attractive opportunities tend to be protected by strong behavioral and social limits to arbitrage. I outline four limits—cognizing, searching, reconfiguring, and legitimizing (CSRL)—that deter firms from sensing, seizing, integrating, and justifying valuable diversity. The case of Moneyball is used to illustrate how these CSRL limits prevented mispriced human resources from being arbitraged away sooner, with implications for engaging cognitive diversity that go beyond sports. This perspective describes why behavioral failures as arbitrage opportunities can persist and prescribes strategists, as contrarian theorists, a framework for formulating relevant behavioral and social problems to solve in order to search for and exploit these untapped opportunities

Personalized Fuzzy Text Search Using Interest Prediction and Word Vectorization

In this paper we study the personalized text search problem. The keyword based search method in conventional algorithms has a low efficiency in understanding users' intention since the semantic meaning, user profile, user interests are not always considered. Firstly, we propose a novel text search algorithm using a inverse filtering mechanism that is very efficient for label based item search. Secondly, we adopt the Bayesian network to implement the user interest prediction for an improved personalized search. According to user input, it searches the related items using keyword information, predicted user interest. Thirdly, the word vectorization is used to discover potential targets according to the semantic meaning. Experimental results show that the proposed search engine has an improved efficiency and accuracy and it can operate on embedded devices with very limited computational resources

RECOVERY OF INTEREST

It is noted that the modern institution of interest is deeply rooted in Roman Law,3 where it was a sum “due from a debtor who delayed or defaulted in repayment of a loan. The measure of the [amount] due for the default or delay was … the difference between the [claimant's] current position and what it would have been had the loan been timely and fully repaid.”4 In other words, the measure of interest due for the delay or default was id quod interest.5 In the modern world, interest generally acts as compensation for the loss of use of money.6 Interest is a sum paid or payable as compensation for the temporary withholding of money.7 The rationale for this practice was articulated by the United States Supreme Court in 1896:8 “It is a dictate of natural justice, and the law of every civilized country, that a man is bound in equity, not only to perform his engagements, but also to repair all the damages that accrue naturally from their breach … Every one who contracts to pay money on a certain day knows that, if he fails to fulfil his contract, he must pay the established rate of interest as damages for his non-performance. Hence it may correctly be said that such is the implied contract of the parties.” The following discussion will focus on the topic of interest in the application of CISG. There is good reason for this approach. First, from an economic point of view, interest is far from minor. The importance of this loss must not be understated.9 Second, a review of CISG decisions of the last decades clearly demonstrates that there are very few topics which have been of more than occasional practical importance, and among these, interest is one of the most important. Interest under CISG, is the issue most often treated by both courts and commentators.1

EFFECTS OF AVOIDANCE: Perspectives from the CISG, UNIDROIT Principles and PECL and case law

Under the United Nations Convention on Contracts for the International Sale of Goods (1980; “CISG” or “Convention”), the effects of avoidance are described in Arts. 81 to 84, four articles of unequal importance dealing with the consequences which result from a declaration of avoidance accomplished by a party in accordance with the conditions set forth in CISG Arts. 49, 51, 64, 72 and 73.2 Among the four, Art. 81 states the basic consequences of avoidance,3 while Arts. 82 to 84 give “detailed rules for implementing certain aspects” of Art. 81.4 From the outset, it is to be made clear that the Convention does not apply to “consensual avoidance” – i.e., termination of the contract that occurs where the parties have, by mutual consent, agreed to cancel the contract and to release each other from contractual obligations – but rather is properly limited to cases where one party “unilaterally” avoids the contract because of a breach by the other party.5 Avoidance is the process through which an aggrieved party, by notice to the other side, terminates the contractual obligations of the parties. If the contract is not avoided, the Convention contemplates that the basic exchange of goods and price will be completed despite a breach, with damages or other remedies to compensate for defects in the exchange.6 That is to say, failure to effectively avoid the contract means that the parties remain bound to perform their contractual obligations. Courts have found a failure of effective avoidance where a party failed to follow proper procedures for avoidance (i.e., lack of timely and specific notice of avoidance to the other party) or where a party lacked substantive grounds for avoiding (e.g., lack of fundamental breach).7 In any event, as a rule, only avoidance of contract makes it clear that the contract will not be performed. When the contract is avoided, the parties lose the right to perform and regain their freedom of disposition. Up until then it is their duty to remain loyal to the contract.8 On the other hand, however, in cases of “consensual avoidance,” it has been asserted, the rights and obligations of the parties are governed by the parties' termination agreement.9 In this regard, a relevant ruling is found in [Austria 29 June 1999 Oberster Gerichtshof [Supreme Court]]:10 “The CISG does not regulate […] the consequences deriving from a consensual avoidance of contract. It is up to the parties to reach adequate arrangements or agree upon adequate provisions for the avoidance (citations omitted). Should, however, as here, no adequate arrangements have been made, the resulting gaps are to be filled under the CISG and not through recourse to national law (citation omitted). In so far as the parties do not autonomously regulate the legal consequences of the consensual avoidance of the contract in their agreement for avoidance – particularly the bearing of risk, the place of performance and the bearing of the costs – the remaining gap must be filled by interpretation according to Art. 7(2) CISG ...” In addition, it is to be made clear that Art. 81 et seq CISG are effective only between the parties. They do not affect the consequences with regard to third parties, namely those which may follow from contracts entered into by the buyer prior to the avoidance (resale, rental, etc.). This issue is governed by the applicable law.1

When more selection is worse

We demonstrate a paradox of selection: the average level of skill among the survivors of selection may initially increase but eventually decrease. This result occurs in a simple model in which performance is not frequency dependent, there are no delayed effects, and skill is unrelated to risk-taking. The performance of an agent in any given period equals a skill component plus a noise term. We show that the average skill of survivors eventually decreases when the noise terms in consecutive periods are dependent and drawn from a distribution with a “long” tail—a sub-class of heavy-tailed distributions. This result occurs because only agents with extremely high level of performance survive many periods, and extreme performance is not diagnostic of high skill when the noise term is drawn from a long-tailed distribution

COMPARISON OF CISG ARTICLE 27 AND COUNTERPART NOTICE PROVISIONS OF THE UNIDROIT PRINCIPLES AND PECL

COMPARISON OF CISG ARTICLE 27 AND COUNTERPART NOTICE PROVISIONS OF THE UNIDROIT PRINCIPLES AND PEC

The weakness of strong ties : sampling bias, social ties, and nepotism in family business succession

Decision-making is a complex cognitive activity filled with bias. Leader decision-making is unique because it occurs in a social context. We examine how biases resulting from social network dynamics complicate leaders' decision-making. In particular, we focus on a specific case of leader cognition: nepotism in the succession decisions in the context of family businesses. Succession often leads to a decline in performance because leaders frequently choose family members as their successor, a form of nepotism. We show that even when a leader can overcome individual decision biases, a bias in sampling resulting from families' strong ties can still allow a leader to wrongly conclude that family members are better qualified than external candidates when the opposite is true. We demonstrate this phenomenon using simulation modeling and explore solutions to family business succession planning