Is There a Payoff to Perceptual Accuracy?

Abstract

Current theories of B2B relationships implicitly assume that the parties involved are accurate in their perceptions of each other. The present paper explores whether this assumption is justified, and what are the behavioral and economic consequences if parties misread the other party's states and behaviors. Using original dyadic data in the service industry, we show that firms that invest in developing accurate images of their counterparts are rewarded by relationships that function better and are more profitable. The mechanism by which this occurs is that perceptual accuracy leads firms to hold positive images of each other and to share the same goals. In turn, these factors reduce channel conflict and, thereby, increase the profit each side derives from its relationship. We show that perceptual accuracy improves over time, particularly when firms use the time to engage in frank communication.