BUS 424 Lecture Notes - Lecture 9: Hindsight Bias, Infor

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 424
• Professor: Johnny Jermias

Document Summary

Purpose: distort perf measures, evaluations, create risks => bear risk + not compensated = undesirable actions, borne by owners/investors diversify them. Economic, competitive factors: demand (regulations, competitor actions, changing tastes), Acts of nature, parliament, humans: unexpected, one-off (earthquakes, executives death), Insurance: low frequency + high impact event, regular premiums exchange large claim, more man-made threats than natural disasters. Flexible perf standards: expected perf given actual conditions. Flexible budgets based on flexible perf standards. Relative perf evaluations: meaningful but difficult find comparison group. Subjective perf evaluations: outcome bias: knowing outcomes influence evaluation, hindsight bias: given knowledge of events, may perceive as more controllable, even though not, Adjusting: more accurate, motivation decision making, lower compensation cost (long run = less risk + turnover), less frustration + noise. Total adjustment: if not involved in decisions + cost (operating corporate headquarters) Perf measures (without any adjustments) provide some infor about manager"s perf. Effect uncontrollable factor estimate: subjectivity = evaluation bias.