Boom and Bust Behavior: On the Persistence of Strategic Decision Biases

Abstract

Abstract This article examines the underlying cognitive and behavioral factors responsible for strategic decisions driving B&B dynamics, discusses the reasons firms do not learn to avoid boom and bust, and identifies tentative strategies for mitigating B&B (Boom and Bust) behavior. At the same time, it conjecturally concludes, there might be a positive collective side to B&B behavior fostering accumulation of knowledge and physical infrastructure, especially regarding new technological paradigms. The next section discusses a number of real world cases of B&B dynamics. The examples illustrate quite common dynamic behaviors and highlight the crucial role of capacity investment decisions in B&B outcomes. Subsequent sections review the findings from prior experimental research on B&B dynamics and discuss some key decision biases and heuristics that play important roles in B&B decision making. The final section outlines some tentative strategies for moderating B&B decision making. The conclusion highlights some of the collectively positive aspects of booms and busts.

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