How do Cognitive Biases affect Strategic Decision Making in SME’s and How can they Avoid their Mistakes made Due to such Biases

Abstract

The field of behavioural economics is an emerging area of study which has answered various questions that revolve around core economic problems. Therefore, it becomes essential to look into strategic decision making in small and micro enterprises through a behavioural perspective since such enterprises are run by individuals and there is an absence of a decision making body that in turn leads to flawed decision making. This paper examines biases and heuristics that affect entrepreneurial decision making across various lines in the SME sector. Biases such as the status quo bias, the hyperbolic discounting bias and the hindsight bias in particular are discussed in this paper. The paper proposes a specified solution set for every bias to negate their effects, and also specifically talks about the assumption of rationality and the framework of behavioural biases that leads to flawed decisions.