Managers and their not-so rational decisions

S. Trevis Certo, Brian L. Connelly, Laszlo Tihanyi

Research output: Contribution to journalArticle

39 Scopus citations

Abstract

Today's corporate environment requires managers to be excellent decision makers. Their ability to make fast, widely-supported, and effective decisions will, in large part, shape the performance of their firms. In this article, we describe two cognitive systems that influence decision making. System 1 refers to a process that is fast, effortless, and intuitive. System 2 is a slow, controlled, and rule-governed decision-making process. Both are important to a wide variety of managerial decisions, and they interact with each other. There are, however, a number of forces at work that hinder the effectiveness of these processes. For example, we know from prospect theory that managers are unwilling to incur loss, so much so that they often make irrational decisions based on a small probability that they could avoid such loss. Another example, the escalation of commitment, explains why managers may continue to dedicate resources to failed projects. We describe these and other biases, with a view toward helping managers better understand the problems of decision making and improve the effectiveness of their decisions.

Original languageEnglish (US)
Pages (from-to)113-119
Number of pages7
JournalBusiness Horizons
Volume51
Issue number2
DOIs
StatePublished - Mar 1 2008
Externally publishedYes

Keywords

  • Decision making
  • Risk
  • Top executives

ASJC Scopus subject areas

  • Business and International Management
  • Marketing

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