IDEAS home Printed from https://ideas.repec.org/a/sae/jothpo/v24y2012i2p274-302.html
   My bibliography  Save this article

Managing expectations

Author

Listed:
  • René Lindstädt
  • Jeffrey K Staton

Abstract

Followers of law, politics and business commonly relate stories of individuals who appear to predict an expected performance level below what they believe themselves to be capable of. The standard explanation for such rhetoric is that it hedges against the negative consequences of unanticipated failures and takes advantage of unexpected successes. Although the strategy appears highly attractive, some individuals do provide honest evaluations of their abilities, and some overpromise. We develop a model of strategic communication designed to explain this variation. Underpromising is especially attractive when observers have strong incentives to watch a preliminary performance; however, when high-quality individuals are in large supply and when the costs of performing badly are neither too high nor too low, underpromising can result in individuals being ignored. To ensure that they are not, individuals must give up the opportunity to outperform a promise and risk an underperformance.

Suggested Citation

  • René Lindstädt & Jeffrey K Staton, 2012. "Managing expectations," Journal of Theoretical Politics, , vol. 24(2), pages 274-302, April.
    • Handle: RePEc:sae:jothpo:v:24:y:2012:i:2:p:274-302
    DOI: 10.1177/0951629811429050
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0951629811429050
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0951629811429050?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Markus K. Brunnermeier & Jonathan A. Parker, 2005. "Optimal Expectations," American Economic Review, American Economic Association, vol. 95(4), pages 1092-1118, September.
    2. George, William R. & Berry, Leonard L., 1981. "Guidelines for the advertising of services," Business Horizons, Elsevier, vol. 24(4), pages 52-56.
    3. Drew Fudenberg & Jean Tirole, 1983. "Sequential Bargaining with Incomplete Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(2), pages 221-247.
    4. Bartov, Eli & Givoly, Dan & Hayn, Carla, 2002. "The rewards to meeting or beating earnings expectations," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 173-204, June.
    5. Ron Kasznik & Maureen F. McNichols, 2002. "Does Meeting Earnings Expectations Matter? Evidence from Analyst Forecast Revisions and Share Prices," Journal of Accounting Research, Wiley Blackwell, vol. 40(3), pages 727-759, June.
    6. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:mth:ijafr8:v:9:y:2019:i:1:p:89-121 is not listed on IDEAS
    2. Mohammadi, Ali & Basir, Nada O. & Beyhaghi, Mehdi, 2015. "Research Intensity and Financial Analysts Earnings Forecast: Signaling Effects of Patents," Working Paper Series in Economics and Institutions of Innovation 397, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    3. Seok, Sang Ik & Cho, Hoon & Ryu, Doojin, 2020. "The information content of funds from operations and net income in real estate investment trusts," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    4. Abhijit Barua & Joseph Legoria & Jacquelyn Sue Moffitt, 2006. "Accruals Management to Achieve Earnings Benchmarks: A Comparison of Pre‐managed Profit and Loss Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 653-670, June.
    5. Brown, Stephen & Hillegeist, Stephen A. & Lo, Kin, 2009. "The effect of earnings surprises on information asymmetry," Journal of Accounting and Economics, Elsevier, vol. 47(3), pages 208-225, June.
    6. Johnson, Peter M. & Jurney, Susan & Rodgers, Theodore C., 2015. "How does the market process sequential earnings information?," Advances in accounting, Elsevier, vol. 31(1), pages 55-67.
    7. Assia Elgouacem & Riccardo Zago, 2020. "Share Buybacks, Monetary Policy and the Cost of Debt," Working papers 773, Banque de France.
    8. Mohamed Khalil & Aydin Ozkan, 2016. "Board Independence, Audit Quality and Earnings Management: Evidence from Egypt," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 15(1), pages 84-118, April.
    9. Vahid Biglari & Ervina Binti Alfan & Rubi Binti Ahmad & Najmeh Hajian, 2013. "The Ability of Analysts' Recommendations to Predict Optimistic and Pessimistic Forecasts," PLOS ONE, Public Library of Science, vol. 8(10), pages 1-10, October.
    10. Sexton, Richard J., 1991. "Game Theory: A Review With Applications To Vertical Control In Agricultural Markets," Working Papers 225865, University of California, Davis, Department of Agricultural and Resource Economics.
    11. Chakrabarty, Bidisha & Moulton, Pamela C., 2012. "Earnings announcements and attention constraints: The role of market design," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 612-634.
    12. Lisa Koonce & Marlys Gascho Lipe, 2010. "Earnings Trend and Performance Relative to Benchmarks: How Consistency Influences Their Joint Use," Journal of Accounting Research, Wiley Blackwell, vol. 48(4), pages 859-884, September.
    13. Steven Young, 2008. "Discussion of Do Acquirers Manage Earnings Prior to a Share for Share Bid," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 671-678, June.
    14. Huang, Wei & Goodell, John W. & Zhang, Hong, 2019. "Pre-merger management in developing markets: The role of earnings glamor," International Review of Financial Analysis, Elsevier, vol. 65(C).
    15. Chin, Chen-Lung & Chen, Mei-Hui & Yu, Po-Hsiang, 2018. "Does meeting analysts’ forecasts matter in the private loan market?," Journal of Empirical Finance, Elsevier, vol. 48(C), pages 321-340.
    16. Dichev, Ilia & Huang, Xinyi & Lee, Donald K.K & Zhao, Jianxin, 2023. "You have a point - but a point is not enough: The case for distributional forecasts of earnings," SocArXiv 4b2y8, Center for Open Science.
    17. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    18. Chung, Yu-Hsuan & Pan, Lee-Hsien & Huang, Shaio Yan & Chen, K.C., 2015. "Do firms change earnings management behavior after receiving financial forecast warnings?," Global Finance Journal, Elsevier, vol. 27(C), pages 1-17.
    19. Brice Corgnet & Simon Gaechter & Roberto Hernán González, 2020. "Working too much for too little: stochastic rewards cause work addiction," Working Papers 2007, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    20. Jeffrey T. Doyle & Russell J. Lundholm & Mark T. Soliman, 2006. "The Extreme Future Stock Returns Following I/B/E/S Earnings Surprises," Journal of Accounting Research, Wiley Blackwell, vol. 44(5), pages 849-887, December.
    21. Mary Hill & Peter Johnson & Kelvin Liu & Thomas Lopez, 2015. "Operational restructurings: where’s the beef?," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 721-755, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:jothpo:v:24:y:2012:i:2:p:274-302. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.