Behavioral Decision Theory Research Articles

Honest incompetence: exploring the dark side of social entrepreneurship

PurposeThis paper explores the often overlooked and novel academic concept of honest incompetence as a potential “dark” side of social entrepreneurship, where well-intentioned but inadequately skilled agents hinder the effectiveness and sustainability of positive social change initiatives.Design/methodology/approachWe have adopted a multiparadigm approach to theory building, known as metatriangulation. We draw upon agency theory and behavioral decision theory to undergird a framework consisting of antecedents, processes, outcomes and moderators of honest incompetence in social entrepreneurship.FindingsWe introduce a detailed framework for understanding honest incompetence in social entrepreneurship. This framework identifies antecedents such as knowledge gaps, examines mechanisms like misguided interventions and explores consequences, including group vilification. Additionally, it investigates moderating factors, emphasizing the disadvantages of outcome-based compensation and the difficulties in evaluating outcomes.Originality/valueThis article investigates factors that engender honest incompetence in social entrepreneurship, revealing how even well-intentioned efforts can inadvertently hinder goals. Despite their sincere motives, social entrepreneurs might make choices that conflict with their objectives. Addressing this issue necessitates a customized approach, which includes engaging actively with the community and fostering robust social connections.

Funding Innovation and Risk: A Grey-Based Startup Investment Decision.

As found in behavioral decision theory, venture capitalists (VCs) rely on heuristics and bias, owing to their bounded rationality, either by limited alternatives or information and resources. India's booming startup scene challenges VCs in decision-making owing to information overload from numerous evolving ventures, which hinders informed judgment. VC investment behavior, due diligence, and cognitive factors related to decision-making have always drawn the attention of researchers. We provide an alternative approach for an optimal decision by VCs by identifying the attributes that influence investment or funding decisions at an early stage of a venture in tech-based industries. Through a literature review, we identify eight attributes, both on internal and external criteria, that venture investors consider when making investment decisions. Based on interviews with 20 experts, we further identify eight key tech-based sectors. Using grey system theory, we then determine the rankings of eight tech startups for investors' early-stage investment decisions. This study presents a linguistic variable-based approach of grey numbers to decide weights and ratings, the grey possibility degree to compare and rank different tech startups, and based on the results, suggests the ideal tech startup. We find that agritech ranks first; thus, investors should prefer venturing into such startups for early-stage investment. E-commerce and edutech ranked second and third, respectively, followed by electric vehicle infrastructure, insurtech, fintech, space tech, and software as a service.

Does Behavioral Decision Theory Influence the Adoption of Mobile Banking among Customers? Experience from Tanzania

Abstract Though the benefits of mobile adoption in banking institutions are extensively recognized, there is a low pace of its adoption among customers. The establishment of behavioral factors that can motivate banking customers to adopt mobile banking has been a concern. Provided that no single framework can fit all sizes, this study builds on past research to invest in behavioral factors among customers toward MB adoption. Through a cross-sectional survey design, 325 questionnaires were distributed among university students in Tanzania to assess customer behavior that can motivate MB adoption. Using structural equation modeling (AMOS 21), the study found that when customers possess judgmental heuristic knowledge that allows them to understand how risks associated with the adoption of MB can be resolved, they are motivated to adopt the innovation. The study recommends the importance of providing knowledge to their customers through various mechanisms and the benefits associated with mobile banking adoption.

Spillover Effects of Sanctions on Airlines

To counter the escalating threat of direct conflict with rogue nations, the use of sanctions packages has become a preferred tactical response. However, although targeted, there are significantly elevated spillover effects that can generate sectoral damage. While the literature on sanctions has focused on analyzing the effectiveness and the impact on the sanctioned and sanctioning country, spillover effects have not been addressed in the tourism and travel industry. Based on behavioral decision theory and modern portfolio theory, this study states hypotheses and confronts two potential results derived from each theory regarding the way negative consequences of sanctions spill over into airlines. Using the aviation sanctions packages derived from the Russia-Ukraine war in 2022 in different regions worldwide, the results indicate greater spillovers flow into airlines than other aviation-related corporations, into big firms than small firms, and with significant differential effects on each analyzed region.

An Islamic cultural analysis of managerial decision-making

Purpose The purpose of this paper is to review and analyze assumptions and the appropriateness of the most dominant strategic decision-making theories within the Islamic cultural context as an attempt to develop an Islamic decision-making framework. Design/methodology/approach This paper adopted the integrative literature review approach as a research method (Torraco, 2005). This method allows the researcher to evaluate and syndicate the relevant literature to, critically, review and expand on the theoretical foundation of the topic and, hence, develop new theoretical perspectives and views. Findings Based on the critical review of the decision-making theories from an Islamic perspective, Islamic culture confirms the behavioural decision theory as the most appropriate approach to make strategic decisions in organizations. In addition, the study reveals that mutual consultation and consultative decision-making (Shura), based on knowledge and Islamic ethics, is the principal Islamic approach to strategic decision-making. Practical implications The developed Islamic decision-making framework will, significantly, assist management practitioners, managers and policy makers in both private and governmental organizations to improve their decision-making skills through adopting the Shura approach in decision-making. Originality/value The paper expands the boundaries of knowledge in managerial decision-making through developing an Islamic decision-making framework. This theoretical framework brings new insights and open new opportunities of thinking on Islamic decision-making among business scholars and represents fundamental grounds for future research in cross-cultural management in the area of managerial decision-making from an Islamic perspective, which is rare among scholars of management.

Unlocking the sustainability of medium enterprises: A framework for reducing cognitive biases in sustainable performance management

Abstract Medium Enterprises (MEs) are significant contributors to global economic development. Integrating sustainability practices in their business can support MEs worldwide to become more sustainable, improving companies’ performance and stakeholders’ expectations. Nevertheless, few MEs adopt sustainable practices. Following Behavioral Decision Theory and Behavioral Strategy literature, we argue that this can be associated with their managers’ decision-making processes – apart from not possessing considerable resources like large companies. Via a mixed-method research design involving 277 Italian ME managers, we investigate the cognitive biases that hinder the development of a sustainable performance management system (SPMS) in MEs. We found the most prominent biases influencing SPMS development. Then, we developed a ‘SPMS de-biasing funnel’ framework. We propose some corrective actions to reduce the impact of the most critical cognitive biases that influence SPMS development, allowing related beneficial potential outcomes.

Self and shared leadership in decision quality: a tale of two sides

PurposeThis study aims to investigate the relationship between shared leadership (SL) and decision quality, utilizing shared leadership theory (SLT) and behavioral decision theory (BDT). The authors will explore the mediating role of “decision comprehensiveness” in the SL–decision quality linkage. Additionally, the authors will examine how individual “self-leadership” and “debate” among team members moderate the relationship between SL and decision comprehensiveness.Design/methodology/approachThe authors tested the hypothesized moderated mediation model using a sample of 506 professionals employed in 112 research and development (R&D) teams, along with their direct managers from large Italian firms. To examine the relationships, the authors employed confirmatory factor analyses and path analyses. In order to address endogeneity concerns, the authors incorporated an instrumental variable, namely delegation, into the analysis.FindingsSL positively influences decision quality, mediated by decision comprehensiveness, where teams include comprehensive information in decision-making. The level of debate among team members positively moderates the SL–decision comprehensiveness relationship. High levels of self-leadership can harm SL by reducing decision comprehensiveness, indicating a downside. However, low or moderate levels of self-leadership do not harm decision comprehensiveness and can even benefit SL.Originality/valueThis is the first work to investigate the relationship between SL and decision quality, shedding light on the mechanisms underlying this association. By integrating SLT and BDT, the authors provide insights into how managers can make higher-quality decisions within self-leading teams. Moreover, this research makes a distinct contribution to the field of self-leadership by delineating its boundaries and identifying a potentially negative aspect within the self-influence process.

The Influence of Decision-Making Logic on Employees' Innovative Behaviour: The Mediating Role of Positive Error Orientation and the Moderating Role of Environmental Dynamics.

The derivation of employees' innovative behaviour is a complex multi-stage process influenced by decision logic. However, previous research on the relationship between the two has not been comprehensive without considering the individual level of employees, and the mechanism of action between the two is still unclear. Based on the behavioral decision theory, the broaden-and-build theory of positive emotions and triadic reciprocal determinism. This study investigates the mediating effects of positive error orientation between decision-making logic and employees' innovative behavior, and the moderating effects of environmental dynamics between decision-making logic and employees' innovative behavior, focusing on the individual level. The questionnaire data was obtained from 403 employees randomly selected from 100 companies in Nanchang, China, in various industries such as manufacturing, transportation, storage and postal services, trade, and wholesale and retail trade. Hypotheses were tested using structural equation modeling. Effectual logic had a significantly positive impact on employees' innovative behavior. The direct effect of causal logic on employees' innovative behavior was not significant, but the total effect was significantly positive. Positive error orientation played a mediating role between both types of decision-making logic and employees' innovative behavior. Moreover, environmental dynamics played a negative moderating role between effectual logic and employees' innovative behavior. This study expands the application of behavioral decision theory, the broaden-and-build theory of positive emotions and triadic reciprocal determinism in employees' innovative behaviour, enriches the research on the mediating and moderating mechanism between employees' decision-making logic and innovative behaviour, and provides a new research perspective and empirical support for subsequent related research. The results of this study provide practical suggestions for promoting employees' innovative behaviour. For example, employees need to cultivate logical thinking, train their decision-making ability, form a positive error orientation, and objectively assess the external environment.

Faktor-Faktor Yang Memengaruhi Minat Mahasiswa Akuntansi Memperoleh Sertifikasi Chartered Accountant

This research aims to examine the influence of factors that influence accounting students' interest in obtaining Chartered Accountant (CA) certification. Behavioral Decision Theory based on the belief, preference and constraint model is used to explain the influence of capabilities, environmental factor, socio-cultural factor, preference, and constraint faced on accounting students' interest in obtaining CA certification. Gender and GPA variables are used as control variables. The population in this research is active Bachelor of Accounting students who come from state/private universities in Bali, Indonesia. The sample determination method uses a nonprobability sampling method with a purposive sampling technique. Data collection in this research used a survey method by distributing questionnaires with a sample size of 86 respondents. The data analysis techniques used are logistic regression analysis and multiple linear regression analysis. The results of data analysis show that capabilities have a positive effect on accounting students' interest in obtaining CA certification.

Governing Large Projects: A Three-Stage Process to Get It Right

Private and public megaprojects, whether new plant facilities, IT systems, skyscrapers, airports, railways, roads, or the Olympics, are frequently associated with dramatic cost and schedule overruns. The root causes are behavioral biases – such as optimism and deliberate deception – accompanied by principal-agent issues and a lack of project-related skills. Through a three-stage process – i.e., Forecasting, Organizing, and Executing (FOX) – we organize and offer solutions to mitigate the cognitive biases and agency issues planners and policymakers face in large projects. Following the three-stage FOX process and building on Behavioral Decision Theory (BDT), we first review evidence for the accuracy of Reference Class Forecasting (RCF), which considers comparable past projects to forecast a current, planned project. We provide evidence for RCF performance and recent methodological extensions such as Similarity Based Forecasting (SBF). Second, considering the principal-agent and project governance literature, we offer organizational solutions to reduce unfounded optimism and deception, including debiasing techniques and specific measures to curb principal-agent issues. Third, we suggest combining a project modular design with speedy implementation for faster, better, cheaper, and lower-risk execution. Overall, we offer an original, holistic theoretical view that deals with both behavioral and strategic elements of how to debias large projects, along with direct practical implications and advice for those who manage megaprojects with increasingly high stakes and risks.

Regret Theory-Based Three-Way Decision Method on Incomplete Multiscale Decision Information Systems With Interval Fuzzy Numbers

In realistic decision-making environments, human behaviors bring influences to various decision-making procedures, and classic multiattribute decision-making approaches based on utility decisions own some deviations from actual situations. The behavioral decision theory modifies classic decision-making theories to make the new method more applicable. Regret theory, as one of the important components in behavioral decision theories, has been widely used in theories and applications. Based on regret theory, we establish a generalized three-way decision method on incomplete multiscale decision information systems with interval fuzzy numbers. First, we select an incomplete optimal subsystem for the incomplete multiscale information system, and convert the multiscale evaluation information into an interval fuzzy number by using a linguistic term set. Second, based on the probability distribution of evaluation values and tradeoff factors, we propose a target-dependent approximation estimation method for the incomplete interval fuzzy subsystem. Then, the regret–rejoicing preferences between objects are obtained. Finally, a tripartition and ranking method based on a max-bipartition and preference index is established. Moreover, the incompleteness experiments show that the decision-making results of our method can still maintain more than 97% consistency in an incomplete information system with a missing rate of at most 20%. In addition, the parameter analysis shows that the proposed method maintains an accuracy rate of more than 98% and a classification error rate of no more than 0.6%.

Avoiding the Worst Decisions: A Simulation and Experiment

Many practical decisions are more realistic concerning preventing bad decisions than seeking better ones. However, there has been no behavioral decision theory research on avoiding the worst decisions. This study is the first behavioral decision research on decision strategies from the perspective of avoiding the worst decisions. We conducted a computer simulation with the Mersenne Twister method and a psychological experiment using the monitoring information acquisition method for two-stage decision strategies of all combinations for different decision strategies: lexicographic, lexicographic semi-order, elimination by aspect, conjunctive, disjunctive, weighted additive, equally weighted additive, additive difference, and a majority of confirming dimensions. The rate of choosing the least expected utility value among the alternatives was computed as the rate of choosing the worst alternative in each condition. The results suggest that attention-based decision rules such as disjunctive strategy lead to a worse decision, and that striving to make the best choice can conversely often lead to the worst outcome. From the simulation and the experiment, we concluded that simple decision strategies such as considering what is most important can lead to avoiding the worst decisions. The findings of this study provide practical implications for decision support in emergency situations.

Three-way decision for probabilistic linguistic conflict analysis via compounded risk preference

Three-way decision, an essential granular computing research tool, provides an efficient solution to complex and uncertain problems. Behavioral decision theory can analyze the risk preferences of decision-makers effectively. Scholars have conducted preliminary exploration on the fusion of these two theories, but it is still challenging to describe the different types of risk preferences of decision-makers. This paper combines prospect theory with regret theory and studies the compound risk preference modeling of three-way decision to address this issue. Because three attitudes of conflicts coincide with three-way decision, many scholars have conducted multi-dimensional research on three-way conflict analysis and accomplished remarkable results. However, few relevant studies consider psychological factors and risk attitudes of decision-makers, and it is more appropriate to describe agents' attitudes on issues using linguistic terms. This paper applies the proposed three-way decision model based on compounded risk preference and probabilistic linguistic term sets to the conflict analysis problem. We utilize examples to explain the decision-making process of the proposed model and three-way conflict analysis method with the influence of the compounded risk preference under the action of reference point and regret avoidance coefficient. The illustrative example illustrates that the proposed three-way decision model can effectively solve the software development conflict analysis problem for different decision-makers and the comparative analysis shows the advantages of the proposed model and method compared with the two existing methods. Finally, we verify the performance of the three-way decision model based on compounded risk preference by UCI data sets in parameter experiments. The changes of the reference point from 10 to 0 and regret avoidance coefficient in 0, 0.15 and 0.3 respectively demonstrate the trend rule of the model's thresholds and delay-decision rate index.

Factors affecting authors' manuscript submission behaviour: A systematic review

AbstractAs an important medium of science communication, academic journals promote the flow and growth of scientific knowledge. To examine the influence of factors on authors' choice of a journal, this paper reviews the literature on journal selection. A systematic review and critical interpretive synthesis methods were used in this study. A total of 132 articles were included and the content characteristics were extracted. Then, based on behavioural decision theory, the extracted data on journal selection factors were synthesized based on critical interpretive synthesis principles. Four synthetic constructs emerged: factors related to information acquisition, factors related to journal evaluation, factors related to submission outcome feedback, and factors related to the authors' backgrounds. The articles revealed that factors related to journal information acquisition and journal evaluation directly influenced authors' submission behaviour, while factors related to authors' backgrounds were moderating variables. Future research should focus on the processes of manuscript‐submission behaviour, to examine the relationships between the factors and identify the mechanisms.

Governing Large Projects: A Three-Stage Process to Get It Right

Private and public megaprojects, whether new plant facilities, IT systems, skyscrapers, airports, railways, roads, or the Olympics, are frequently associated with dramatic cost and schedule overruns. The root causes are behavioral biases – such as optimism and deliberate deception – accompanied by principal-agent issues and a lack of project-related skills. Through a three-stage process – i.e., Forecasting, Organizing, and Executing (FOX) – we organize and offer solutions to mitigate the cognitive biases and agency issues planners and policymakers face in large projects. Following the three-stage FOX process and building on Behavioral Decision Theory (BDT), we first review evidence for the accuracy of Reference Class Forecasting (RCF), which considers comparable past projects to forecast a current, planned project. We provide evidence for RCF performance and recent methodological extensions such as Similarity Based Forecasting (SBF). Second, considering the principal-agent and project governance literature, we offer organizational solutions to reduce unfounded optimism and deception, including debiasing techniques and specific measures to curb principal-agent issues. Third, we suggest combining a project modular design with speedy implementation for faster, better, cheaper, and lower-risk execution. Overall, we offer an original, holistic theoretical view that deals with both behavioral and strategic elements of how to debias large projects, along with direct practical implications and advice for those who manage megaprojects with increasingly high stakes and risks.

Equity incentive contract characteristics and company operational performance-An empirical study of Chinese listed companies.

Equity incentive, as an institutional arrangement for the coordination of the interests of shareholders and managers, has been widely implemented by public companies in developed capital markets throughout Europe and America. However, does it work and/or when might it be more effective in emerging market economies such as China? We aimed to understand the effects of equity incentive plans implemented by listed companies in China and the potential influence of the general characteristics of contracts on the effectiveness of equity incentive plans. Based on behavioral decision theory, this paper adopts a multivariate linear regression model to analyze the 1695 equity incentive plans implemented in Chinese listed companies between 2010 and 2018 with their two-year lagged performance data. The empirical results show that the operational performance of companies after implementing equity incentive plans shows a trend of polarization. In the 95% confidence interval, the effect of restrictive stock incentive and exercise-constrained variables is not significant, while the validity period has a significant positive correlation and incentive intensity has a significantly negative correlation with the company's operational performance. Furthermore, the negative effects mentioned above become more obvious with a longer plan implementation period. Based on these conclusions, we suggest that companies could adopt equity incentive plans with a relatively longer validity period and more reasonable incentive intensity. Additionally, it would be better for companies to select non-restricted stocks as incentive tools if there is no obvious preference.

A three-way decision approach with prospect-regret theory via fuzzy set pair dominance degrees for incomplete information systems

The generalized three-way decision (G3WD) theory is featured by a trisecting-acting-outcome paradigm. Experiments in psychology and economics have indicated that risky decision-making problems should take into account the psychological characteristic of agents. Moreover, the loss of information acts as a serious challenge in G3WD. Thus, exploring valid G3WD approaches that consider the mental state of decision-makers in incomplete information systems (IISs) is imperative. This paper explores a new three-way decision (3WD) approach that combines the prospect theory with the regret theory for IISs with the support of fuzzy set pair dominance degrees. First, the notion of fuzzy set pair dominance degrees to process evaluation information in IISs is put forward. Then, an approach that obtains objective reference points and determines the weighting function in the prospect theory is given by combining 3WD with the behavioral decision theory. In light of the prospect theory, a prospect value function is obtained, which is introduced into the regret theory to obtain two utility perception functions. As a consequence, a G3WD approach based on fuzzy set pair dominance degrees and the behavioral decision theory is constructed for IISs. By using two medical cases in the KEEL and UCI datasets, the superiority, effectiveness and stability of the constructed approach are verified via corresponding comparative and experimental analyses.

The effects of competency, situational support and information search to auditors' performance

The competency of an auditor is important when comes to conducting audit tasks particularly one who has extensive knowledge, specific skills and techniques. This study aims to identify the key factors affecting the auditors’ performance. Through the lens of the Behavioral Decision Theory (BDT) framework, this study examines the direct effects of audit competency, situational support and information search factors in enhancing auditors’ performance. A survey was conducted on audit firms of varying sizes in Malaysia. The data were collected and were analyzed using Structural Equation Modelling-Partial Least Square (SEM-PLS) statistical tools. Based on evidence from external auditors, the results indicate that audit competency, situational supports and information search are important in the efficiency and effectiveness of auditors’ performance. This study has several contributions to the literature.

Preference reversal: Analysis using construal level theory that incorporates discounting

According to the behavioral decision theory, time discounting is often used to explain preference reversals. However, the discounting theory fails to explain some types of preference reversals. Furthermore, preference reversals are limited to those along the time axis (i.e., temporal distance). To extend our knowledge of preference reversals in various choice contexts, this study constructs an analytical framework that combines the time discounting notion of behavioral decision theory and construal level theory developed in social psychology. We put forward three propositions for discounting: magnitude effect (the higher the construal level, the smaller the discounting rate), sign effect (the discounting rate is smaller for losses than for gains), and generalization of distance (discounting applies not only to temporal distance but also to psychological distances such as social distance). These propositions were validated in two studies. In Study 1, we conducted a series of three experiments on a lottery choice task using two samples of respondents (i.e., students and a web panel). In Study 2, we estimated the discounting rates of the higher and lower construal levels by employing multiple intertemporal choice tasks. While many choices involve trade-offs among attributes, the effects of changes in psychological distances are not clear. However, by identifying whether these attributes evoke high or low construal levels and whether the aspects are related to gains or losses, our approach greatly facilitates the analysis of how evaluation and preference are affected by psychological distance, and consequently, that of preference reversal behavior.

Too much can be as bad as too little: product update strategy for online digital platform complementors

AbstractProduct updates have become prevalent on online digital platforms, given the unique market, product, and technological characteristics that underlie digital platforms. Scholars have begun to explore the efficacy of updates on digital platforms, highlighting the merits of implementing frequent updates. Drawing on behavioral decision theory, this paper analyzes the trade-offs that consumers encounter between the benefits and costs associated with updates and challenges an implicit assumption held in extant studies with respect to the linear efficacy of updates. In the context of mobile platforms, this paper, using a multi-method study, identifies the existence of an inverted U-shaped relationship between product updates and complementor product performance. We also find that the moderating efficacy of platform endorsement is positive in that it serves as an amplifier of whatever a complementor offers, tightly intertwined with the complementor’s offerings. Our paper expands the platform literature by investigating successful complementor product strategies that take into account unique platform characteristics with a strong grounding in interdependent owner–complementor dynamics.