Lecture Unit 9: Information Disclosure and Strategy (2/2) Flashcards
(47 cards)
What is the potential negative impact of report cards according to the concept of “Multitasking: Teaching to the Test”?
- Report cards can do more harm than good.
- Agency creates the effect of multitasking, i.e., trying to do two or more things at once
- Improvements to earn a better report card may reduce quality in other unmeasured areas.
When is multitasking a potential problem in the context of report cards?
- Report cards are incomplete: they do not cover all relevant aspects of performance
- The agent has limited resources that must be allocated across tasks.
- A report card to boost some aspects of performance will necessarily affect other aspects of performance not covered by the report card.
What happens when you pay for X if X and Y are complements?
Pay for X and:
Get more of X and more of Y
What happens when you pay for X if X and Y are substitutes?
Pay for X and:
Get more of X and less of Y
What qualities do most report cards measure?
- Outcomes: most important measure for consumers (value of the product in use)
- Process: useful if outcomes are difficult to measure
- Inputs: useful if outcomes are difficult to measure, or if there are concerns about multitasking.
What are the considerations when measuring outcomes in report cards?
- Outcome data is not always available
- Noise may cause mean reversion: firms with high scores will have more than their share of good luck
- Customer feedback about outcomes may be unreliable.
What are some limitations of customer feedback on outcomes?
- Feedback is unverifiable
- Customer response rates are low, producing a poor sample size of a product’s total consumption.
- Motivation bias: Only customers that experience excellent or very low quality tend to provide feedback, leading to survey bias.
- Survivor bias: Those customers who did not like the product no longer use it and therefore are not surveyed
- Consumer demographics skew results as certain classes report consistently higher or lower ratings.
Limitations of customer feedback on outcomes: what is motivational bias?
- Motivation bias: Only customers that experience excellent or very low quality tend to provide feedback, leading to survey bias
Limitations of customer feedback on outcomes: what is Survivor bias?
- Survivor bias: Those customers who did not like the product no longer use it and therefore are not surveyed
When should process and input measures be used?
When outcome measurement faces challenges.
When does outcome measurement face challenges?
- If process and inputs are positively linked to favorable outcomes
- It is inexpensive to measure process and inputs compared to outcomes
- Process and inputs are not easily manipulated through multitasking
Why are raw outcome measures adjusted in risk adjustment?
- Raw outcome measures are adjusted for factors beyond the control of the seller;
- without risk adjustment, due to noise,
- high quality sellers may end up ranked at the bottom.
When should risk adjustment be utilized?
Risk adjustment should be utilized
- if the measured quality depends on the characteristics of the consumer.
Risk adjustment
What are examples requiring risk adjustment for airline on-time arrival measurements?
- May be due to typical weather in the areas served by the airline.
- Airline may fly point-to-point leading to higher on-time arrival averages.
Risk adjustment:
What are examples requiring risk adjustment for automobile repair statistics?
- High performance vehicles may require more maintenance due to their driving characteristics
- High performance cars should not be compared to luxury vehicles when measuring maintenance costs.
Why are composite scores useful in presenting report card results?
Composite scores make quality ranking easy for consumers to comprehend.
How are composite scores typically calculated?
Composite scores are often just the sum of average scores of several measured characteristics.
How can the components of composite scores be adjusted?
Components of composite scores can be weighted to achieve a better balance of information about quality.
Gaming report cards:
What must sellers of lower quality products accept in most markets?
- lower prices,
- lower quantity,
- or both.
Why do sellers have an incentive to manipulate report cards?
If the cost of manipulating report cards is less than improving product quality.
What can certifiers do to avoid the gaming of report cards?
Certifiers can take steps to avoid gaming of report cards.
What are some steps to avoid report card gaming? from sellers
- Scores should be reported in simple graphics
- Scores should be reported as composites.
- Multitasking can be avoided by reporting at the most aggregated level possible.
- Outcome measures should be complemented with process and input measures.
- Report card scores should be risk adjusted
Where do independent certifiers often receive a large portion of their profit?
What do e-business like amazion offer?
From firms they certify.
Amazon: offers certification
How do newspapers and magazines complement their primary business?
By offering reviews and certifications.
