engleski

Behavioral economics and decision making: importance, application and development tendencies

Behavioral economics is considered a fairly new and largely uncovered field, where so far insufficient empirical systemic knowledge has been accumulated. Behavioral economic concepts are implemented and used in economic agents’ perception, employee behavior, and exploring the influence of human rationality on improvements in decision-making processess. This article provides overview of the behavioral economic concepts and development history, as well as examines the role of CEO’s cognitive and personnal biases on firm’s performance, since their judgments are considered significant in reaching firms important organizational decisions such as the large scale investments and choice of capital budgeting. This work deals with impact of top managers biases, values, irrationalities and other adjoint forces affecting CEO’s decision making process, which have a profound effect on firm’s business performance. The aim is to provide better understanding of means on how biases and irrationalities in CEO’s decision making process can be alleviated in order to avoid making suboptimal corporate decisions. Article centers on the role of behavioral concept of (ir)rationality and overconfidence which affect CEO's, besides knowledge, education and experience. Brief literature review and latest most significant trends for research in behavioral economics field are presented. Recent findings indicate that incorporation of behavioral economic principles into mainstream economics has a large potential to improve the managerial process of efficient decision making.

Behavioral economics; CEO’s biases; irrationalities; decision- making; behavioral economic trends

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