Cognitive Biases in the Capital Investment Context [electronic resource] : Theoretical Considerations and Empirical Experiments on Violations of Normative Rationality /
Serfas, Sebastian.author.
In today’s competitive business environment, an optimal investment strategy is vital for every company. However, it is often endangered by unconscious mental biases inherent in every human being. Building on findings from cognitive psychology research, Sebastian Serfas shows in detail that and how these so-called cognitive biases systematically affect and distort capital investment-related decision making and business judgements. He provides a large number of examples that every business practitioner might encounter every day, demonstrates the detrimental effects through various empirical experiments, and outlines potential counterstrategies to mitigate these negative effects.
Description based upon print version of record.
Table of Contents; 1 Introduction; 1.1 Origin and Academic Relevance of the Research Focus; 1.2 Structure of the Thesis; 2 Theoretical Foundations of Capital Investments and Investment Appraisal; 2.1 Fundamentals of Capital Investments; 2.1.1 Definition of Investments in General; 2.1.2 Classifications and Characteristics; 2.1.3 Phases of Capital Investments; 2.2 Fundamentals of Decision Theory and Decision Models; 2.2.1 Introduction to Decision Theory; 2.2.2 The Basic Concept of Rationality; 2.2.3 Decision Models; 2.3 Investment Appraisal; 2.3.1 Investment Appraisal Process
2.3.2 Fundamental Static Methods2.3.3 Fundamental Dynamic Methods; 2.3.4 Advanced Methods; 3 Theoretical Foundations of Cognitive Biases; 3.1 Fundamentals of Cognitive Psychology; 3.1.1 General Psychology and its Sub-Disciplines; 3.1.2 Introduction to Cognitive Psychology; 3.1.3 Subjects and Approaches of Cognitive Psychology; 3.2 Heuristics and Biases; 3.2.1 Introduction to the 'Heuristics and Biases' Approach; 3.2.2 Fundamental Heuristics and their Resulting Cognitive Biases; 3.2.2.1 Availability Heuristic; 3.2.2.2 Representativeness Heuristic; 3.2.2.3 Anchoring and Adjustment Heuristic
3.3 Selection of Further Biases and Effects3.3.1 Framing Effects; 3.3.2 Irrational Relativity; 3.3.3 Action and Inaction Preferences; 3.3.4 Overconfidence Effects; 3.4 Critical Discussion of the 'Heuristics and Biases' Approach; 3.4.1 Critiques Regarding the General Orientation and Focus; 3.4.2 Critiques Regarding the Scientific Adequacy; 3.4.3 Critiques Regarding the Content and Research Set-Up; 4 Cognitive Biases in the Capital Investment Context; 4.1 Preparatory Theoretical Considerations; 4.1.1 Cognitive Biases in the General Business Context
4.1.2 Cognitive Biases in the Financial Investments Context: Behavioral Finance4.1.3 Cognitive Biases in the Capital Investments Context; 4.2 Illustrative Case Examples; 4.2.1 Identification and Evaluation of Risks for a Capital Investment Project; 4.2.2 Preparation and Analysis of a Business Case for a Capital Investment Opportunity; 4.3 Empirical Experiments; 4.3.1 Overview and General Approach; 4.3.2 Empirical Experiments: Anchoring; 4.3.2.1 Underlying Theory; 4.3.2.2 Methodology and Preparation of Empirical Experiments; 4.3.2.3 Analysis and Conclusions
4.3.3 Empirical Experiments: Framing4.3.3.1 Underlying Theory; 4.3.3.2 Methodology and Preparation of Empirical Experiments; 4.3.3.3 Analysis and Conclusions; 4.3.4 Empirical Experiments: Asymmetric Dominance; 4.3.4.1 Underlying Theory; 4.3.4.2 Methodology and Preparation of Empirical Experiments; 4.3.4.3 Analysis and Conclusions; 4.4 Critical Discussion of Conclusions and Limitations; 4.4.1 Preliminary Conclusions; 4.4.2 Limitations inherent in the General Approach and Methodological Set-Up
4.4.3 Limitations inherent in the Incongruity between Participant Population and Relevant Real Life Population
Includes bibliographical references.
In today’s competitive business environment, an optimal investment strategy is vital for every company. However, it is often endangered by unconscious mental biases inherent in every human being. Building on findings from cognitive psychology research, Sebastian Serfas shows in detail that and how these so-called cognitive biases systematically affect and distort capital investment-related decision making and business judgements. He provides a large number of examples that every business practitioner might encounter every day, demonstrates the detrimental effects through various empirical experiments, and outlines potential counterstrategies to mitigate these negative effects.
Finance.
Finance, general.