Behavioral Economics and Strategic Decision Making

The Oxford Handbook of Managerial Economics Edited by Christopher R. Thomas and William Shughart DOI: 10.1093/oxfordhb/9780199782956.013.0009

17 Pages Posted: 2 Jul 2014

See all articles by Massimo Garbuio

Massimo Garbuio

The University of Sydney

Dan Lovallo

The University of Sydney

Elif Ketenciouglu

University of Sydney Business School

Date Written: 2013

Abstract

Modern strategic decision theory focuses on those actions taken by senior executives (on behalf of the owners) that commit substantial resources, set precedents, and create waves of less important decisions. This chapter explores key behavioral assumptions that dispute the notion that strategic decisions are wholly rational in a neoclassical economics sense. It classifies deviations from rationality as non-standard preferences, non-standard beliefs, and non-standard decisions. Insights are provided on how behavioral economics can be applied to strategic decisions in organizational settings, and moreover on how behavioral economics can be enriched by asking questions that are unique to the role of executives making strategic decisions within firms.

Keywords: Strategic decision making, preferences, beliefs, choices, heuristics and biases, rationality

JEL Classification: A10, M10, D7

Suggested Citation

Garbuio, Massimo and Lovallo, Dan and Ketenciouglu, Elif, Behavioral Economics and Strategic Decision Making (2013). The Oxford Handbook of Managerial Economics Edited by Christopher R. Thomas and William Shughart DOI: 10.1093/oxfordhb/9780199782956.013.0009. Available at SSRN: https://ssrn.com/abstract=2460690

Massimo Garbuio (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Dan Lovallo

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Elif Ketenciouglu

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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