Serfas Cognitive Biases in the Capital Investment Context

Theoretical Considerations and Empirical Experiments on Violations of Normative Rationality
2011
ISBN: 978-3-8349-6485-4
Verlag: Betriebswirtschaftlicher Verlag Gabler
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 255 Seiten, eBook

Sebastian Serfas shows how cognitive biases systematically affect and distort capital investment-related decision making and business judgements. He provides a large number of examples that every business practitioner might encounter every day, demonstrates the detrimental effects through various empirical experiments, and outlines potential counterstrategies to mitigate these negative effects.

Dr. Sebastian Serfas completed his doctoral thesis under the supervision of Prof Dr. Uwe Götze at Chemnitz University of Technology. He conducts research at the intersection of psychology and business administration and works for a leading management consultancy.

Zielgruppe

Research

Autoren/Hrsg.

Serfas, Sebastian

Inhaltsverzeichnis

1;Table of Contents;8
2;1 Introduction;15
2.1;1.1 Origin and Academic Relevance of the Research Focus;15
2.2;1.2 Structure of the Thesis;18
3;2 Theoretical Foundations of Capital Investments and Investment Appraisal;21
3.1;2.1 Fundamentals of Capital Investments;21
3.1.1;2.1.1 Definition of Investments in General;22
3.1.2;2.1.2 Classifications and Characteristics;24
3.1.3;2.1.3 Phases of Capital Investments;27
3.2;2.2 Fundamentals of Decision Theory and Decision Models;29
3.2.1;2.2.1 Introduction to Decision Theory;30
3.2.2;2.2.2 The Basic Concept of Rationality;31
3.2.3;2.2.3 Decision Models;35
3.3;2.3 Investment Appraisal;38
3.3.1;2.3.1 Investment Appraisal Process;39
3.3.2;2.3.2 Fundamental Static Methods;41
3.3.3;2.3.3 Fundamental Dynamic Methods;45
3.3.4;2.3.4 Advanced Methods;49
4;3 Theoretical Foundations of Cognitive Biases;53
4.1;3.1 Fundamentals of Cognitive Psychology;53
4.1.1;3.1.1 General Psychology and its Sub-Disciplines;54
4.1.2;3.1.2 Introduction to Cognitive Psychology;56
4.1.3;3.1.3 Subjects and Approaches of Cognitive Psychology;59
4.2;3.2 Heuristics and Biases;61
4.2.1;3.2.1 Introduction to the 'Heuristics and Biases' Approach;61
4.2.2;3.2.2 Fundamental Heuristics and their Resulting Cognitive Biases;66
4.2.2.1;3.2.2.1 Availability Heuristic;67
4.2.2.2;3.2.2.2 Representativeness Heuristic;74
4.2.2.3;3.2.2.3 Anchoring and Adjustment Heuristic;81
4.3;3.3 Selection of Further Biases and Effects;84
4.3.1;3.3.1 Framing Effects;85
4.3.2;3.3.2 Irrational Relativity;89
4.3.3;3.3.3 Action and Inaction Preferences;93
4.3.4;3.3.4 Overconfidence Effects;97
4.4;3.4 Critical Discussion of the 'Heuristics and Biases' Approach;101
4.4.1;3.4.1 Critiques Regarding the General Orientation and Focus;101
4.4.2;3.4.2 Critiques Regarding the Scientific Adequacy;103
4.4.3;3.4.3 Critiques Regarding the Content and Research Set-Up;106
5;4 Cognitive Biases in the Capital Investment Context;109
5.1;4.1 Preparatory Theoretical Considerations;109
5.1.1;4.1.1 Cognitive Biases in the General Business Context;109
5.1.2;4.1.2 Cognitive Biases in the Financial Investments Context: Behavioral Finance;112
5.1.3;4.1.3 Cognitive Biases in the Capital Investments Context;116
5.2;4.2 Illustrative Case Examples;121
5.2.1;4.2.1 Identification and Evaluation of Risks for a Capital Investment Project;121
5.2.2;4.2.2 Preparation and Analysis of a Business Case for a Capital Investment Opportunity;126
5.3;4.3 Empirical Experiments;131
5.3.1;4.3.1 Overview and General Approach;131
5.3.2;4.3.2 Empirical Experiments: Anchoring;141
5.3.2.1;4.3.2.1 Underlying Theory;142
5.3.2.2;4.3.2.2 Methodology and Preparation of Empirical Experiments;144
5.3.2.3;4.3.2.3 Analysis and Conclusions;148
5.3.3;4.3.3 Empirical Experiments: Framing;159
5.3.3.1;4.3.3.1 Underlying Theory;159
5.3.3.2;4.3.3.2 Methodology and Preparation of Empirical Experiments;161
5.3.3.3;4.3.3.3 Analysis and Conclusions;165
5.3.4;4.3.4 Empirical Experiments: Asymmetric Dominance;173
5.3.4.1;4.3.4.1 Underlying Theory;173
5.3.4.2;4.3.4.2 Methodology and Preparation of Empirical Experiments;176
5.3.4.3;4.3.4.3 Analysis and Conclusions;182
5.4;4.4 Critical Discussion of Conclusions and Limitations;190
5.4.1;4.4.1 Preliminary Conclusions;191
5.4.2;4.4.2 Limitations inherent in the General Approach and Methodological Set-Up;192
5.4.3;4.4.3 Limitations inherent in the Incongruity between Participant Population and Relevant Real Life Population;197
5.4.4;4.4.4 Replication Study with Professionally Experienced Participants;199
6;5 Debiasing and Potential Countermeasures against Cognitive Biases;204
6.1;5.1 Robustness of Cognitive Biases;204
6.2;5.2 Debiasing Techniques;206
6.2.1;5.2.1 Definition of Debiasing in General;207
6.2.2;5.2.2 Knowledge, Experience, and Expertise;208
6.2.3;5.2.3 Incentives and Accountability;210
6.2.4;5.2.4 Training and Tools;212
6.3;5.3 Counterstrategies;216
7;6 Conclusion;223
7.1;6.1 Overall Summary;223
7.2;6.2 Areas for Future Research;228
8;Appendices;232
8.1;Appendix I: Introductory description of the situation583;233
8.2;Appendix II: Anchoring experiment 1584;234
8.3;Appendix III: Anchoring experiment 2585;235
8.4;Appendix IV: Anchoring experiment 3586;236
8.5;Appendix V: Anchoring experiment 4587;237
8.6;Appendix VI: Task framing experiment 1588;238
8.7;Appendix VII: Task framing experiment 2589;239
8.8;Appendix VIII: Asymmetric dominance experiment 1590;240
8.9;Appendix IX: Asymmetric dominance experiment 2591;241
8.10;Appendix X: Demographic information collection592;242
9;References;243

Über Autor(innen)

Dr. Sebastian Serfas completed his doctoral thesis under the supervision of Prof Dr. Uwe Götze at Chemnitz University of Technology. He conducts research at the intersection of psychology and business administration and works for a leading management consultancy.