NBA 6935

Managerial and Employee Biases in Pricing and Incentives

Course Description

Course information provided by the 2025-2026 Catalog.

Standard economic theory assumes managers set prices and design incentives within fully rational frameworks. Behavioral economics shows systematic biases that can generate costly errors and departures from standard predictions. This course examines how psychological and cognitive biases affect two managerial domains: pricing and employee incentives. We will analyze pricing pitfalls—anchoring, loss aversion, overconfidence, and mis-specified mental models—that lead to mispricing. We will also study how employees’ limited attention, bounded rationality, and social preferences (e.g., respect, purpose) shape responses to contracts, sometimes producing unintended effects on motivation, effort, and performance. Understanding these tendencies can help managers craft more effective incentives and avoid designs that backfire. Beyond correcting one’s own biases, students will learn to anticipate—and when appropriate, strategically leverage—predictable biases of competitors and employees. Through cases, experiments, and discussion, the course will develop practical tools to mitigate bias-driven errors and optimize pricing and incentive design. Unlike consumer-oriented behavioral marketing courses, the focus here is on managers’ strategic decisions and employees’ incentive responses.

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