Better Safe Than Sorry: Strategic Nay-saying in Idea Evaluation

Since innovative ideas are inherently uncertain in their commercial and technological value, managers often struggle to evaluate them. They cast evaluations that are overly optimistic or pessimistic relative to the ideas' actual performance. How do managers respond to these evaluation errors? We answer this question using panel data from the idea management system of a large firm in the aircraft industry. Employing a difference-in-differences framework, we find that managers reject more ideas following overestimation errors but remain unresponsive to underestimation errors. We explain this finding with strategic nay-saying: Fearing the reputational costs of additional errors, managers preemptively reject ideas because the value of rejected ideas remains unknown. We also consider alternative accounts of manager error responses, including learning from errors and intensified search for information, but find inconsistent evidence. Our study uncovers a new source of managerial conservatism that is rooted in an asymmetry in the observability of under- and overestimation errors.