Organizational decision-maker bias supports merger wave formation: demonstration with logical formalization

Organizational decision-maker bias supports merger wave formation: demonstration with logical... Imitation of firms that opt for strategic reorganizations by opting for mergers and acquisitions facilitates market wave formation. Empirical evidence on mergers and acquisitions suggests that, under uncertainty, firms regret more not following their rivals’ merger moves of yet unknown outcome than possibly failing jointly by copying them. Looking for the rationale for this bandwagon behavior, we explore the underlying decision-making framework by using formal logic and search for behavioral premises consistent with the observed outcomes. We point out three biased expectations, modeled by using a belief modal operator, that filter out relevant scenarios from the consideration set of otherwise rationally behaving decision-makers. The theorems derived from the logic model highlight the drive to imitate competitors’ merger choices for all but one of the eight possible outcomes of the decision-making framework. For the latter case, a boundary condition is given that makes imitation the predicted strategy. Our approach goes against the view that human behavior defies logic-based rendering also if such behavior can be adequately described as non-rational in an economic sense. Logic is a flexible representation tool to model even faulty behavior patterns in a transparent way; it can also help exploring the consequences of the cognitive mistakes made. Our findings suggest that threats to wealth creation may not necessarily find their origins in morally questionable organizational behavior, but rather in modalities of decision-making under uncertainty. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Quality & Quantity Springer Journals

Organizational decision-maker bias supports merger wave formation: demonstration with logical formalization

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Publisher
Springer Netherlands
Copyright
Copyright © 2014 by Springer Science+Business Media Dordrecht
Subject
Social Sciences, general; Methodology of the Social Sciences; Social Sciences, general
ISSN
0033-5177
eISSN
1573-7845
D.O.I.
10.1007/s11135-014-0122-8
Publisher site
See Article on Publisher Site

Abstract

Imitation of firms that opt for strategic reorganizations by opting for mergers and acquisitions facilitates market wave formation. Empirical evidence on mergers and acquisitions suggests that, under uncertainty, firms regret more not following their rivals’ merger moves of yet unknown outcome than possibly failing jointly by copying them. Looking for the rationale for this bandwagon behavior, we explore the underlying decision-making framework by using formal logic and search for behavioral premises consistent with the observed outcomes. We point out three biased expectations, modeled by using a belief modal operator, that filter out relevant scenarios from the consideration set of otherwise rationally behaving decision-makers. The theorems derived from the logic model highlight the drive to imitate competitors’ merger choices for all but one of the eight possible outcomes of the decision-making framework. For the latter case, a boundary condition is given that makes imitation the predicted strategy. Our approach goes against the view that human behavior defies logic-based rendering also if such behavior can be adequately described as non-rational in an economic sense. Logic is a flexible representation tool to model even faulty behavior patterns in a transparent way; it can also help exploring the consequences of the cognitive mistakes made. Our findings suggest that threats to wealth creation may not necessarily find their origins in morally questionable organizational behavior, but rather in modalities of decision-making under uncertainty.

Journal

Quality & QuantitySpringer Journals

Published: Nov 12, 2014

References

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