How to De-Bias Investment Judgement – Unpacking Bias and Possible Remedies in a Cap-Ital Investment Context

36 Pages Posted: 14 Sep 2020

See all articles by Andreas Scherm

Andreas Scherm

Bundeswehr University Munich

Bernhard Hirsch

Bundeswehr University Munich

Matthias Sohn

European University Viadrina Frankfurt (Oder)

Miriam Maske

University of the German Federal Armed Forces - Universität der Bundeswehr München

Date Written: August 7, 2020

Abstract

Extant research shows that managerial decision-making can be biased. One bias that has received attention from the psychological literature yet very little attention from business research is the unpacking bias. This bias suggests that the perceived probability that an event will occur generally increases when the event’s description is unpacked into a dis-junction of sub-events. We conduct an experiment with experienced managers (N = 249) and hypothesize that for a capital investment decision context, managers’ judgement of the probability of a future event depends on whether the event is described as one packed event or is unpacked into several disjoint sub-events. Additionally, we propose that altering the format of the description of an event’s occurrence from percentage values to relative frequencies reduces the unpacking bias. The results are consistent with both hypotheses. We do not find that using explicit instructions as an additional de-biasing measure further improves judgement. Our results contribute to research on managerial biases and provide practical implications for the design of management reports that are used as an informational basis for investment decisions.

Suggested Citation

Scherm, Andreas and Hirsch, Bernhard and Sohn, Matthias and Maske, Miriam, How to De-Bias Investment Judgement – Unpacking Bias and Possible Remedies in a Cap-Ital Investment Context (August 7, 2020). Available at SSRN: https://ssrn.com/abstract=3669007 or http://dx.doi.org/10.2139/ssrn.3669007

Andreas Scherm

Bundeswehr University Munich ( email )

Werner-Heisenberg-Weg 39
Neubiberg, 85577
Germany

Bernhard Hirsch (Contact Author)

Bundeswehr University Munich ( email )

Werner-Heisenberg-Weg 39
Neubiberg, 85577
Germany

HOME PAGE: http://www.unibw.de

Matthias Sohn

European University Viadrina Frankfurt (Oder) ( email )

Grosse Scharrnstr. 59
Frankfurt (Oder), Brandenburg 15230
Germany

Miriam Maske

University of the German Federal Armed Forces - Universität der Bundeswehr München ( email )

Werner-Heisenberg-Weg 39
Neubiberg
Munich, 85579
Germany

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