The impact of cognitive biases on capital investments

Sebastian Serfas ()

Metrika: International Journal for Theoretical and Applied Statistics, 2011, vol. 21, issue 4, 427-446

Abstract: A large body of research shows that cognitive biases—unconscious mental errors caused by simplified information processing strategies—distort decision making in a variety of situations. This article demonstrates that these biases are also highly relevant with regard to decisions in a capital investment context, an area that has not received scientific attention yet. Building on a short introduction of the underlying principles and on brief analogy-based theoretical considerations, the main part describes and analyzes three series of empirical experiments, which clearly show that anchoring-induced cognitive biases systematically distort judgments and decision making in the respective contexts. This is the case for artificially incorporated anchors (first series of experiments) as well as for situation-embedded anchors (second series). The third series of experiments finally shows that the observed bias also persists for professionally experienced people. Copyright Springer-Verlag 2011

Keywords: Capital investments; Cognitive biases; Anchoring; Experiments; Behavioral accounting; Decision theory; Controlling; Cognitive psychology; Heuristics (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:metrik:v:21:y:2011:i:4:p:427-446

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DOI: 10.1007/s00187-011-0120-0

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