The Role of Expectations in Business Decision Making

Abstract

From an extended sequence of observations of decision making in three firms, four examples of how management uses expectations in making internal investment decisions are analyzed. The analysis suggests that although expectational data are an important element, they do not enter into the decisions in quite the way anticipated by standard theories of business behavior. In particular, four characteristics of these decisions are discussed: the extent to which resource allocation reflects comparisons of marginal advantages of alternatives; the extent to which search activity is viewed as one of the competitors for internal resources and the nature of search activity in a business organization; the type of computations about alternatives that are made and used in a decision; and the interaction between expectations and personal and subunit preferences.1 R. M. Cyert, W. R. Dill, and J. G. March are faculty members in the Graduate School of Industrial Administration, Carnegie Institute of Technology.

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