On The Implications of Behavioral Decision Theory for Managerial Decision Making: Contributions and Challenges

This article discusses the implications of behavioral decision theory to managerial decision making by looking at the contributions made and the challenges its findings pose in attempting to contribute more to decision making in and by organizations. This article does not survey behavioral decision theory because extensive reviews of the literature exist that describe the major findings of this research field. The heuristics and biases paradigm shows that in estimating probabilities and frequencies under uncertainty, people use heuristics (rules of thumb) such as availability, representativeness, and anchoring and adjustment. The use of such heuristics is natural for human beings because in many cases such as the prediction of future stock prices people do not have all the information needed to make proper estimates according to established quantitative models.