Academic journal article Academy of Strategic Management Journal

Can Managers Be Really Objective? Bias in Multicriteria Decision Analysis

Academic journal article Academy of Strategic Management Journal

Can Managers Be Really Objective? Bias in Multicriteria Decision Analysis

Article excerpt

(ProQuest: ... denotes formula omitted.)

INTRODUCTION

Strategic decision-making is often deemed as an objective exercise, especially when it is supported by-arguably-rational analytical tools. Classic rationality and bounded rationality paradigms assume that top managers approach strategic decision-making by means of a purposive, systematic and comprehensive process (Simon, 1955, 1979). Per this process, managers state concrete objectives, collect relevant information, develop viable alternatives, and identify the optimal course of action, thus maximizing utility. Throughout the past few decades, numerous techniques have been developed to facilitate decision making, including classic tools such as the strengths-weaknesses-opportunities-threats (SWOT), the political-economic-social-technologicalenvironmental-legal (PESTEL), the external factor evaluation (EFE) or the internal factor evaluation (IFE) matrices, or more recent extensions, such as the internal competitive profile (ICPM), the external competitive profile (ECPM) or the financial competitive profile (FCPM) matrices (Capps III & Cassidy, 2016). The introduction and development of decision support systems (DSS) and other computer-based decision tools further enhanced the strategic decision making processes, and their capability to address increasingly complex situations (Shim et al., 2002). In general terms, most of these decision support tools are intended to deal with the structured parts of complex managerial problems to make decision making more efficient. Strategic decisions, though, involve both structured and unstructured elements, which must be dealt with by means of the decision maker's judgment, intuition and experience, in addition to any analytical approach chosen.

It follows that individual leanings or preferences are inherent to complex strategic decisions. Therefore, inevitably, cognitive and motivational biases pervasively affect managerial decisions and influence strategic outcomes (Das & Teng, 1999). As the exercise of strategic management frequently requires making decisions in complex situations, managers appeal to diverse heuristics or shortcuts to analyze and simplify contextual information. Since the publication of Tversky and Kahneman's seminal paper (1974), there has been an increasing interest in understanding the underlying mechanisms that explain such heuristics or shortcuts, and the consequent biases that may affect human behavior in organizational decision making and strategic planning contexts (Busenitz & Barney, 1997; Busenitz et al., 2003). Numerous experimental studies have been performed within the premises of different academic fields, such as psychology, economy, finance, marketing, and-marginally and more recently-operations research (Franco & Hämäläinen, 2016; Hämäläinen, Luoma, & Saarinen, 2013). As a result, researchers have identified an ample range of human biases that can be classified as cognitive or motivational, and which are capable of distorting judgment and decision-making (Montibeller & von Winterfeldt, 2015). This is known as decision theory. Overall, it could be argued that its most remarkable contribution to knowledge is that is has proven that humans are all vulnerable to fall into these biases, leading us to make suboptimal or inefficient decisions that violate rationality and commonly accepted normative principles (Kahneman, 2011).

In a managerial context, these biases can be especially costly because they could cloud objectivity when making decisions and therefore undermine organizational value (Frederick, 2005; Montibeller & von Winterfeld, 2015; Montibeller & von Winterfeldt, 2015). Although media and popular literature tend to praise gutsy business decisions-and the gutsy leaders who implement them-that yield successful market or business moves (Freiberg, 2004; Keyt, 2003), it is difficult to argue against the idea that firm strategies should be the result of sound analyses that consider as much contextual evidence as possible before making a decision (Kiron, Ferguson, & Prentice, 2013). …

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