Looking beneath the surface: The impact of psychology on corporate decision making

Abstract

Purpose

This article aims to discuss some of the most common ways in which business decisions are affected by cognitive biases. It focuses on the individual level of decision making and discusses how biases are deeply entrenched in the way that many decisions are made. It also discusses how flaws in decision making can escalate when executives are under pressure, over‐confident or part of a group.

Design/methodology/approach

This article draws on a range of research in cognitive and organizational psychology to show the potential effect of cognitive biases on corporate decision making.

Findings

The article argues that it is necessary to develop a better understanding of the effect of cognitive biases on executive decision making. Whilst research suggests that many aspects of decision‐making processes operate outside one's conscious awareness, it is suggested that these flaws may be easier to monitor and control when one is aware of their potential impact on corporate decisions.

Originality/value

The paper demonstrates how a lack of awareness of the widespread operation of cognitive biases reduces the possibilities for good corporate governance.

Citation

Hall, K. (2007), "Looking beneath the surface: The impact of psychology on corporate decision making", Managerial Law, Vol. 49 No. 3, pp. 93-105. https://doi.org/10.1108/03090550710816500