When it comes to making decisions, human beings have built-in biases. So do companies and other organizations. In any number of ways, these biases can stall, skew, or deny the kind of clear-sighted decisions that are at the heart of strategic management. To effectively tie strategy to value creation, management should make tangible efforts to overcome these biases. The late Nobel Prize'winning psychologist and economist Daniel Kahneman laid the foundation for what we now call behavioral economics and behavioral finance. While his focus was primarily on individual decision-making, we had the opportunity to ask how it might apply to organizations. We asked him, 'If people don't behave in an economically rational way, is there any hope for organizations'' His response: 'I'm much more optimistic about organizations than individuals. Organizations can put systems in place to help them.' Managers can develop rules and processes that help overcome inherent decision-making biases. Drawing...
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