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
Date Written: 2013
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: Suggested Citation