 From Individual Biases to Organizational ErrorsDan Lovallo Chapter 4 in Organization and Strategy in the Evolution of the Enterprise, 1996, pp 103-123 from Palgrave Macmillan Abstract: Abstract In economics the use of psychological assumptions other than rationality to make predictions about organizational or system behaviour is rare, although the company is quite good (Keynes, 1936; Nelson and Winter, 1982; Simon, 1982; Williamson, 1975, 1985). From an empiricist’s view-point the dearth of research using alternative psychological assumptions is disappointing since there is massive evidence that individuals deviate from rationality. Furthermore, these deviations are systematic — the errors tend to be in the same direction — which implies that non-rational behaviour is often not random but predictable. However, to be fair, incorporating assumptions other than rationality has its costs. Rational models tend to be mathematically elegant and yield precise predictions, while behavioural models tend to be more complicated and yield vague predictions. Richard Thaler (1992, p. 198) sums up the tradeoff succinctly: ‘Would you rather be elegant and precisely wrong, or messy and vaguely right?’ Keywords: Group Decision; Prospect Theory; Loss Aversion; Major League Baseball; Human Decision Process (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-13389-5_5 Ordering information: This item can be ordered from DOI: 10.1007/978-1-349-13389-5_5 Access Statistics for this chapter More chapters in Palgrave Macmillan Books from Palgrave Macmillan |
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