Generation mechanism of behavioral risk for organizational decision-makers in financial institutions: organizational and human errors

Abstract

This study investigates the mechanism behind the generation of behavioral risk among decision-makers in financial institutions. We start by examining the general mechanism of organizational decision-making behavior, then analyse organizational errors and human errors in the decision-making process, and subsequently define the connotations and types of organizational decision-makers’ behavioral risk. The study also identifies the necessary conditions for the emergence of decision-making behavioral risk. We construct a model to analyse the behavioral risk of decision-makers in financial institutions. We also develop motivation and utility functions for organizational decision-makers’ behavior, examine the relationship between factors in the utility function, and explore how organizational decision-makers adjust their behavior in various situations to maximize utility. The paper also analyses a case study involving the China Everbright Group (CEG). The study revealed the following: ① The conditions for the occurrence of organizational decision-makers’ behavioral risk in financial institutions mainly stem from the conflict between organizational interests and decision-makers’ interests, the failure of organizational contextual constraints, and the lack of organizational decision-making auditing and feedback mechanisms. ② Organizational decision-makers tend to exhibit inappropriate decision-making behaviors when they overestimate their own abilities in comparison to the benefits they expect. ③ Financial institutions should avoid organizational errors to reduce the likelihood of behavioral risk by increasing the cost of organizational decision-makers’ behavior. Our study proposes measures to mitigate the risk of inappropriate behavior by financial institutions through scientific decision-making.