Extensions of Bowman's Theory on Managerial Decision-Making

Howard Kunreuther
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Howard Kunreuther: University of Chicago

Management Science, 1969, vol. 15, issue 8, B415-B439

Abstract: Bowman has developed a theory which claims that a manager makes good decisions on the average but that he may exhibit a high variance in his behavior. This paper proposes three general criteria which must be satisfied for this theory to have validity. These tests are then used to evaluate a production planning model for an electronics firm where the rules are based on "average" past behavior. Several interesting results emerge when comparing the production plans based on an "average" rule with the actual plans for the company. When the manager has limited information regarding future sales, as when he develops his initial production estimates, then a plan based on average behavior performs considerably better than actual initial plans. However, when environmental cues provide reliable information on future sales of specific items (as when revisions are made) then actual decisions are clearly superior to those suggested by an average rule. This case study offers insight into the potential usefulness as well as the limitations of Bowman's hypothesis. Suggestions for future research in this general area conclude the discussion.

Date: 1969
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