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Myths in management
Is the stock market stupid, or what? Well . . . perhaps the answer is
partly “yes” . . . but it is probably also a bit more subtle than that.
Apparently you and I, investors and analysts, care about rms using
the right language, but we care much less about what they actually
do. Hence, we reward their symbolic behavior, rather than their
actual behavior. We may not even be fully aware of it, but that’s
what we value: unlike Caesar’s wife Pompeia (who, according to
Caesar, not only had to be virtuous but also appear virtuous), we
want a rm to appear virtuous, yet we dont care whether it really is!
Right again! Managers and their self-fulfilling
prophecies
I realize that, by now, over the past chapters, I must have been
giving you the impression that I am slightly skeptical about the
mental abilities of people in business, including top managers.
But that’s a faulty impression, honest! Well, that is . . . I do
actually think they have only limited mental abilities . . . But
what I am mostly trying to point out is that that is because they
are only human. Or, let’s say, near human (just like business-
school professors and other suspected mutations of the human
genome) because they do suffer an awful lot from self-fullling
prophecies. Let me give you an example.
My former colleague at the London Business School, Olay
Sorenson (now at the University of Toronto), together with his
colleague David Waguespack, examined distributors in the US
movie industry. Distributors have certain preconceived ideas
about what movies will be a success at the box ofce – for
instance, the number of stars in the movie, the actors’ prior
successes, previous experience of the production team, etc.
When Sorenson and Waguespack analyzed data on over 5,000
movies, they discovered that these distributors seemed correct
in their beliefs; movies that corresponded to their prior beliefs
indeed reaped higher revenue at the box ofce.
Then Sorenson and Waguespack did a clever thing; they also
analyzed the scarce resources that these distributors assigned
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