CHOOSING INNOVATION: HOW REASONING AFFECTS DECISION ERRORS

Abstract

Human beings are inherently fallible in their decision-making due to the constraints of bounded rationality. To make up for this inadequacy, we make judgments using a combination of deductive and inductive reasoning, which allows us to justify our decisions because we have implemented a process of proof. In this study, we conduct an experiment that simulates an uncertain environment characterized by incomplete information with members of a committee deciding whether or not to invest in innovation-oriented new product projects. We examine a third form of logic, abductive reasoning, and investigate the direction of its effect on the probability of project acceptance. We find that under abductive reasoning, individuals are more likely to accept projects. Our aim is not to show how to decide what is and what is not innovative, but rather to show that this decision is subject to the framing effects of logical forms of reasoning. The findings provide new psychological evidence on decision-making when choosing innovation, and raises questions on how juries choose innovative projects.

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