Looking Inside: Psychological Influences on Structuring a Firm's Portfolio of Resources

Journal of Management, Vol. 37 No. 5, 1444-1463, 2011, DOI:10.1177/0149206310391909

21 Pages Posted: 29 Jun 2014

See all articles by Massimo Garbuio

Massimo Garbuio

The University of Sydney

Adelaide King

University of Virginia

Dan Lovallo

The University of Sydney

Date Written: September 2011

Abstract

This article explores ways that behavioral decision theory can predict and explain patterns of decisions that managers make in their efforts to maximize the economic value and scarcity potential of a firm’s portfolio of resources. The authors argue that psychology can offer a deeper and more nuanced look “inside” resource based theory (RBT) as an efficiency-oriented, resource focused analytical tool for discerning firm performance differences. The authors focus their inquiry on the resource acquisition, accumulation, and divestment processes that determine the components of a firm’s resource portfolio, developing a two-dimension framework to facilitate and extend the implementation of a decision-based approach to RBT. The first dimension describes three key psychological contexts of decisions, distinguishing among (a) perceptions of a firm’s existing resources, (b) the experience or competence of the decision makers, and (c) the framing of how alternatives are presented to decision makers. The second dimension captures the psychologically meaningful distinction between single choices made in isolation and simultaneous choices. Drawing on experimental and field research, the authors develop six testable propositions and explore potential for future theoretical and empirical contributions. The framework can help scholars specify the psychological foundations of a firm’s resource portfolio’s economic value and scarcity potential while helping managers delineate relevant considerations they must adopt to enhance a firm’s profitability.

Keywords: resource-based theory; behavioral decision theory; managerial cognition; resource management processes; strategic decision making

JEL Classification: M10,

Suggested Citation

Garbuio, Massimo and King, Adelaide and Lovallo, Dan, Looking Inside: Psychological Influences on Structuring a Firm's Portfolio of Resources (September 2011). Journal of Management, Vol. 37 No. 5, 1444-1463, 2011, DOI:10.1177/0149206310391909. Available at SSRN: https://ssrn.com/abstract=2460178

Massimo Garbuio

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Adelaide King (Contact Author)

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

Dan Lovallo

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

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