Behavioral Aspects of Decision Making: Are Project Managers Mad Hatters?

Abstract

Traditionally, the decision-maker is viewed as a rational being who bases decisions on available information and mathematical and statistical models and calculations. The investment project choice is aligned with the company's long-term development goals, required return, attitude toward risk as well as consideration of limiting factors. An investment project should be reviewed by rational managers within all available information and resources. In this paper, it was examined whether and in what way the influence of behavioral factors reduces the rationality of managers in making decisions regarding investment projects and how these factors affect their optimal choice between investment opportunities. It was examined if emotions, different heuristics, and overconfidence affect the information selected throughout the decision-making process, impairing people's rationality and preventing the best option amongst competing projects. The findings of the study have demonstrated the significant impact that a variety of heuristics, biases, emotions, and social intelligence have on managers' investment decisions.

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