Winners Curse, Underdog's Advantage?

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Chen of Cathay Pacific Airways, Hong Kong's flag carrier, illustrates. Chen was asked about SARS and. Cathay Pacific. The numbers were depressing:.
Winners Curse, Underdog's Advantage? ,

William Chiul

John F.

Hulpk.t,

Aidan Kelly'

,

Michelle

To1

1.

Hong Kong University of Science and Technology; 2. University College Dublin E-mail: {wchiu, hulpke, Michelle.To } @ust.hk; [email protected]

"profound discov ery" in management science, or to use abuzzword of the 1990s, this idea has become a

''Abstract

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Dozens of authors have explained that those in tend to remain stable when change is

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new paradigm. Business PhD students around the world in the }L't century can explain "the winners curse." Dozens of authors have explained that those in front tend to remain stable when change is required, thus are doomed to fall behind as the world changes, "the winners curse" (Barker, Patterson & Mueller, 200L; Hong & Shum, 2AC3; Robbins & Pearce, 1992; Schendel & Patton, 1976). Satchel Paige's second "law", if you are in front something may be gaining on you, has now been accepted as a fundamental truth in the business

a

"'front

'required, thus are doomed to fall behind as the ='.;'world changes, "the winners curse." Applications '"'have been seen at the individual, organizational, '' and societal levels of analysis. Anecdotal evidence ri., su1sests there may be a similarly important truth tii'at the other end of the spectrum. If there is danger ii':'at the top, there may also be opportunity at the ri

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*i","bottowt.

If there is a "winners cLtrse," there may olto be an "underdog's advantage." No

::::

'""'conclusions

can be reached yet, but we suggest

world.

further discussion and study.

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'''Keywords "-'Winners curse

-'='f.

academia are now holding "when

you are at the bottom, the only way to go is up." If there is a "winners curse," is there also an "underdog's advantage"? We present these ideas here in the hope that we may hear from other colleagues with their observations, examples, reactions. At this stage we cannot see the best way to empirically test the idea, but anecdotes and cases

At the bottom? The only way to go is up.

.a ."i

The "winners curse" says it is hard to stay on top. This winners curse idea is widely written about and ==' :"'widely accepted in business literature. Is there an opposite countervailing principle? If at the bottom, the only way is up? Is there an "underdog's

studies now may suggest a way to challenge the idea

more formally later. The winners curse research began with anecdotal evidence but has now progressed much further. Perhaps the same will happen with the present idea, when one is at the

There once was an American philosopher who

=-*as also a famous athlete, Satchel Paige. His fame =="came from his athletic ability and his longevity: he ='played in professional baseball even at the age of 60. .r'r .r..r :'+T)^--1 ="=Baseball, like many sports world wide, typically =-feature young people from twenty to thirty years of =t'' age. But it is not his athletic achievements which .'= should be of concern to managers and leaders in *j' Asia and around the world, it is his wisdom. He was ="famous for short sayings such as 'owhen you ate at bottom, the only way to go is up." He was also ==='the r===quoted as saying "if you are ahead, don't look back. , =," Something may be gaining on you." ''.'' ' Satchel Paige's "something may be gaining on You" has now changed from a folksy aphorism to a

bottom the only want to go is up. One author of this paper began contemplating on this idea many years ago when serving in a military organization. A specific military unit had just failed an important inspection from headquarters, called an OR[, an "Operational Readiness Inspection." The corrmander of the unit which failed the inspection was removed, transferred to a back office job, and

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of us in

of fundamental truth in the other "law;"

underdog's advantage

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group

discussions on whether there may be a similar gefin

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one of the present authors became the

new commander. It rapidly became apparent that the new cofilmander would be seen as a hero, that good things about the organi zation which had been

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o.,-erlc'c,ke,j u-ould no\\:

be brought to light,

and

negati"e ihrngs about the organizatron would now

L,e dcu'nplaved. Everyone wanted to

see

i::rprcvement. and rvhether or not there was honestly ali\ uriprcYement, improvement was seen. The only t",,3). io go \\'as up, and up the organizatton went.

{rc

Hundreds of lives were lost and the economic loss in the millions and millions of dollars. But in the area worst hit, there is one line of reasoning that says SARS was the turning point for has been calculated

Hong Kong which had been in economic and for several years prior to

psychological doldrums

then foilowing another principle populari zed rn it was discovered in psychology,

SARS.

liierarure before

the h'gmalion Effect, the unit actually became s

2.glll:

a

the beginnirrg of a new America?

mo othly' functioning great organi zatron.

Later on in one of our author's Ph D studies, four students were going through at more or less the

Many would say America has always had a problem of overconfidence, a superiority complex that makes the nation criticized and feared. But those inside America may not have felt superior to the rest of the world in early September zo}L,

time schedule, sfudying under the same scholars, but with our author having started six sarne

months behind the other three. The earlier three took

the dreaded Ph D Qualifying Exam, and all three failed. This was truIy a dream situation for our author, because the program was at the bottom and now the only way to go was up. If another person failed the qualifying exam the focus of attention and blame would turn to the teachers who now would have failed four times in a row to prepare the students for the exams. As would be predicted by the "law" "when you are at the bottom the only way to go is up" our author passed the qualifying exams with distinction. It had to be, nothing to do with qualifications, it simply had to be. The basic principle or "law" being discussed here so far applies to individual situations. In the future it would be valuable to look at the potential for this "law" to explain or possiblr, predict chan,_ses on organi zatronal behar-ior u'ithin organizations, or explain or shed li,_eht on changes in oreanizarional strategies and organizational penonnance. Simrlar to the u'inners curse, the idea can b'e apphe,c a[ the individual level. rhe organizauonan ievel. or ar rhe societal level of analr'sis. But ro help more rhe discussion forw,ard, \f,ie u'ili briet^lt' describe r\\'o situations at the macroeconomic societal level and see how they may help support the idea of universality of this "the only way is up" "law." First, we will discuss how glll changed America. The tragic destruction of lives and property when New York City lost the two World Trade Center towers was certainly a tragedy, but some have actually said, "this was the best thing that happened to America in a long time." It was if America, which had been in an economic slump since the Dot.Com crash in 1999, woke up after 9/LL and said "enough is enough !" secondly, we will look briefly at SARS.

before the 9lll suicide attacks on the World Trade Towers which destroyed the buildings. Things were not all unbounded optimism prior to the attacks. In

fact, prior to 9/11. stock markets had slid, joblessness had increased, and a feeling of malaise gripped the nation. The tragedy of glll hit America hard. The psychological blow was felt across the land. The economic loss caused by the event was horrendous. For example, many industries such as air travel were brought to a standstill. America's reactions to the events of 9/lI were multiple, overlapping, and contradictory. Yes, there

was a huge feeling of pain, huge personal and economic hurt. But not all was negative: at the individual level. one finds stor), after story of rediscovered resolve. rediscovered optimism. one obsen'er. a musician u.ho ferried refreshments to

in lus yan on the day of the aiucl anC m lhe fclioir, in_q davs. put it this way: \\-lii::n fre \\'reckaee rhev caused. I witnessed the yery best of Mankind""". But then, in our darkest hour, I watched hundreds, then thousands, then = millions of good people respond to this despic able = emergenc) ,,r'orkers

act. And so did God. And through the grief and

I

found hope that Mankind

pain,

will one day overcome

Certainly one can find innumerable similar stories. = There is even one web "site dedicated to the events1g of Sept. 11,2}01that lead to a rebirth of this Greaffi

Nation" (Ringsurf, 2004). And

international,,,

observers also noted a positive impact of the 9/11'i.l event. A Romanian newspaper carried an opinion

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piece which included the following: "Why areffi

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= :

..=

astonishing mixlure

of civilizations

TV around the globe, wearing masks: "on couples

and religious beliefs. Still, the American tragedy turned three hundred million people into a hand put on the heart"

at weddings, people attending religious services, in business meetings, classrooms and restaurants and on the streets. The young and old, humans and animals, even images of Madonna and Buddha, all sported facemasks. . . Hong Kong was portrayed

(Nistorescu, 20A2) These observations are heard countless times. The tragedy of 9/I1, brought America closer together. The feeling contained elements of "things cannot get worse, so they must get better." And they did.

internationally as 'death

city."'

(Chiu, Galbraith

& Loh,2004) Precisely when

no one would dispute that nothing worse could have happened to Hong Kong, however, the many fine but hidden qualities of the people of Hong Kong emerged quietly. Suddenly, the entire Hong Kong society appeared to be capable of great generosity and compassion, as

3. SARS: Hong Kong Hits Bottom

At first glance, SARS's

effect to Hong Kong was similar to nails to the coffin. Long before the epidemic of the century hit Hong Kong, the former British colony had been on its way to hitting the bottom. A high-flying Asian dragon from the 1980s until 1997, Hong Kong was the most admired economy in the world, enjoying a high annual GDP growth ragte. At the time of the handover of sovereignty from Britain to China in 1997 , confidence was at all-time high, as reflected

shown

in the massive outpouring of sympathy

towards medical practitioners and SARS victims. Rather unexpectedly, the Hong Kong medical cortmunity proved itself to be world-class and was able to pioneer new treatments and to lead research

into the new disease. To the disbelief of all, the entire Hong Kong sociefy was able to set aside difference and was able to unite and fight on a

in property and stock prices. Such historic high time in Hong Kong history was then followed by an amazing series of crises

united front.

Even at the height of the crisis, some people expressed optimism. One light-hearted article was titled "SARS scary, but always look on bright side of life." In this piece seen on a Singapore-based web newsletter, author Melvin Singh described how easy it was during SARS to get a taxi to stop, how peaceful and un-crowded the streets were, etc. Singh also noted that People think twice about spitting on the floor not because of a fine but out of fear that the spittle may come back to plague

and misfortune: the Asian Financial Crisis of 1991-1998, the crash of the property market, the burst of the Internet and IT bubble, the skyrocketing unemployment rate caused by strucfural economic changes, as well as misadministration of the Hong Kong government. Compared with the glittering cities in China, such as Shanghai, Beijing and Shenzhen, which had eclipsed Hong Kong as the new promise land of opporfunity and furure, Hong Kong rvas a place of despair and resentment. The confidence of the

them later.... " Tn his conclusion, Sin_eh noted "It's a hu-ee price to p&)', but if this is w,hat it takes to naake us gracious. considerate and responsible..."

Hon-e Kon-e people hit the bottom.

But u'ait. That \\'as u'hat people thou,shr. belore SARS. In \Iarch 2003. Hong Kone \\'es confronteC with something they needed the leasi: a facal anC mysterious epidemic. As a resuit of the SARS outbreak, Hong Kong was engulfed in such deep pessimisms that the end of years' of recession was no where to be seen. Commentaries on the local economy were often near hysterical, using words like "disasterl' and phases like "profound long term impact."l The "dama ge" to the tourism industry also grabbed attention, as the international media replaced Hong Kong's image as 'oAsia's World City" by the "facemask": "... Hong Kong was on front pages of newspapers and magazines worldwide. Crtrzens of Hong Kong were shown on

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Si:reh. 100-:'1.

ResiCents of Fiong Kong seemed to quickly recover rreentalli- trorn SARS. ,\xd the recovery was not si-mpl1- a rerum to the starus quo, the siruation before SARS: now there was a new fighting spirit

felt

across the cornmuniqv'. More than once the

present authors have heard phrases such as "If we can handle this, we can handle anything!" It is as if

the city, collectively has declared, "enough is enough!." In one talk given by executive Philip Chen of Cathay Pacific Airways, Hong Kong's flag carrier, illustrates. Chen was asked about SARS and

Cathay Pacific. The numbers were depressing: passenger levels dropped dramatically, flights were cancelled right and left, and at one point the airline

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even looked at implicarions of the possibility of grounding the l The Economic lmpact of SARS, stephen Brown entire fleet, to cease operating. But, the executive continued: "we witl survive this and come out stronger!" (cathay, 2003) At another glance, the SARS outbreak could be a blessing in disguise. In the worst of times, Hong Kong saw the

Gadiesch, Pace and Rogers report on zL successful business furnarounds (2003). while based on a

limited number of observations, it still gives useful information about which ingredients are likely to be found in connection with successful turnarounds at

claim to predict that every successful individual, or society must fail, but it does say that there is danger at the top. our thesis is that there is an opposite equally compelling idea. If at the bottom, there is a strong potential for an upside

the organi zatronal level. Personnel changes at the top were found to be very significant. successful transformations included changes in finances, strategies, and included a rebirth of corporate pride. other authors have studied turnarounds in an Asian context, and find similar forces at play (Bruton, Ahlstrom & Wan,2003). This short paper is intended to begin a discussion, not to conclude it. If the idea seems to be worth further exploration, we suggest studies both at the societal level and at the organi zational level. Historians and economists might look at the societal level, focusing on "recoveries" or "turnarounds.,, Those who sfudy economic cycles might be able to

move. There seems to be an underdog's advantage.

connect our ideas here to existing literature.

way up.

4. Tentative Conclusions The "winners curse" says it is hard to stay on top. This winners curse idea is widely accepted in business literature. The winners curse idea does' not organi zation,

At the organi zatronal level, students of strategy may be able to integrate our ideas into the

A

possible criticism arises from some of our colleagues who carry our ideas here too far. They say "it is Nor necessarily true that what is down must come up." At the societal level, the example of Japan is cited. Japan has been down so long that it

framework of already completed studies

on

corporate turnarounds. In both the societal level and

at the organizational level, increasing the sample

surely negates the idea that whatever is down must come up. At the organi zational leve1, contrary examples can also be cited. For many or maybe most business organizations facing bankruptcy, when things get very bad they do NoT get better. The firms go bankrupt." True, but this does not negate the basic idea of the "law," that when things

size above the two included here would be a first step. After collection of more anecdotal evidence, then an agenda for empirical research might be formulated. But we believe the next step is to collect additional anecdotal or case information. we think we will see an underdog's advantage.

are really bad they have an increased potential to get better. The unarriculated part of the staremenr could be added: the), get better. or ther- die.

6. References

t1l Barker V L m, Pafterson p w Jr, & Mueller G c, 1001. organizadonal causes and strategic consequences of the extent of top management

Simiiarli. the old rrurh "correlarion does nor imp11' causahn'" apphes ro lhrrs case. t,ur alsc appiies

io the "*'imers cr-r.rse. Those srucrine anc ,*nting aboi.lt the "n'inrrers curse' could an,c rr, oui,J De criticized in the thel' said "an). or._s anlzarion or person at the top must fail." Those explaining the

team replacement during rurnaround attempts. The Journal of \fanaEernenr Srudies, p3g (2): p235.

t2l Bmton G D. Ahlstrom D, &. Wan J C C. 2003. Tumaround in East Asian firms: Evidence from ethnic overseas Chinese communities.

"winners curse" do not say this, they say once at the

top, the risk increases. we Say, for those at the bottom, the odds of improvement increase. How much the odds increase, we do not know, but as Satchel Paige might have told us, .,when things are

Strategic Management Journ al, pZ4(6):p519. t3l cathay Pacific Airways: a view from the top.

2003. case, Hong Kong university of science and Technology.

really bad they gotta get better. Or else . . ..,,

14) Gadiesh O, Pace S, & Rogers. 2003. Successful turnarounds: three key dimensions. Strategy &Leadership, 3 1(6) : pp.4l-43.

5. Recommendations for Further Research

In a recent article in

Strategy

&

Leadership,

157

I

J K, Offerman T. 2003. Winner's curse without overbidding. European Economic

t5l

Goeree

Review, p47 (4):p625

t6l Hong H, &

Shum

M. 2002.

Increasing

competition and the winner's curse: Evidence from procurement. The Review of Economic Studies, 69(241): pp .87t-898.

U) Kanter R M. 2003. Leadership and the psychology of Turnarounds. Harvard Business Review, 8 1(6): pp.58-67 . [8] Loh C, Galbraith Y & Willian Chiu W.2004.

At the epicentre Hong Kong and the SARS In C Loh (Ed), The Media and SARS:

outbreak,

pp.195-214. Hong Kong University Press, [9] Melvin S. 2003. Sars scary, but always look on bright side of life. The Electronic New Paper. Singapore Press Holdings AsiaOne Ltd.

t10l Nistorescu, Cornel.

September

C"ntarea Americii [Ode To

24,

2002. America].

Evenimentulzilei ["The Daily Event" or "News of the Day," Romanian newspaper].

t11l Ringsurf Q}Aq "website dedicated to

the

events of Sept. 11,2001 that lead to a rebirth of this Great