Behavioral Biases and Corporate Decision Making on Investing Abroad

Kotov, Denis (2013): Behavioral Biases and Corporate Decision Making on Investing Abroad. Published in: YEARBOOK OF MARKET ENTRY ADVISORY 2013 (September 2013)

Abstract

In this paper we have studied the role of biases in making corporate decisions on investing abroad. We have formulated four conditions under which a corporate investment decision is least exposed to the influence of heuristics. Failing to comply with some conditions of a precise investment performance leads to a situation of a high uncertainty and complexity that demands an intuitive thinking from a decision maker and, as a result, stimulates using the rules of thumb. Further, we have discussed possible measures for the mitigation of the negative influence of heuristics. For an indicative estimation of a degree of biases an ex-ante/ex-post risk perception matrix has been proposed. The study is supported by the results of a survey made in 2008 and structured interviews taken in the spring and the summer of 2013. The survey was carried on among German firms doing business in Russia. Interviews covered not only investments to Russia, but also investments of Russian investors in Europe as well as transatlantic foreign direct investments made in the last three years.

• Item Type: MPRA Paper
• Language: English
• Keywords: biases; heuristics; investment decisions; foreign direct investments; decision-making process
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior

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