of 3 - Center for Global Outsourcings

If n increases, the forecasting errors converge, but also increase costs of hiring additional
managers. The optimal n depends on the firm and/or industry. If q percent are optimistic and (1q)
are pessimistic, the joint forecasted probability is: ( ) (∑
∑
( )
). For a given q, error converges to a stable point with increase in n. Also, higher q
results in a smaller error (i.e. | | , before q=1) (Figure 2a).
Figure 2a Forecasting Errors Given q Known (left) and Figure 2b (q random), right figure
If q is randomly generated, the net forecasting errors diverge (Figure 2b).
Summary and Conclusions
Firms can reduce managerial anchoring costs if a committee approach is adopted (if managers
anchor in different directions), and/or when future cash flows are volatile. However, higher
marginal costs of hiring can offset lower anchoring costs. Future research can remove model
assumptions and can consider sequential ‘learning’ by manager committee members.
Tenth Annual International Daejeon, South Korea P a g e | 42
Smart Sourcing Conference June 28-29, 2012