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Behavioural Finance and Organisations: A Review
[Přehled oboru behaviorální finance a organizace]

Author

Listed:
  • Petr Houdek
  • Petr Koblovský

Abstract

The article presents a short overview of heuristics and biases in managerial decision-making under risk and the consequences of such non-standard preferences for financial health of organisations. It is argued that, particularly in the case of inefficient ownership control or poor corporate governance, such bounded rationality manifestations can have a significant impact on a firm's performance. We also argue that in such cases risk preferences of individual managers can be more idiosyncratic. We illustrate that using the concepts of limited attention, reference-dependence decision-making and especially overconfidence (over-optimism). The relevance of such concepts is shown on a number of real data studies analysing investment policies of firms, their leverages, financing strategies and decisions on mergers and acquisitions. We also include recommendations targeted at minimising negative outcomes of bounded rationality at the managerial level in respect of financial health of firms. The final parts concern limits of the current empirical literature.

Suggested Citation

  • Petr Houdek & Petr Koblovský, 2016. "Behavioural Finance and Organisations: A Review [Přehled oboru behaviorální finance a organizace]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2016(2), pages 33-45.
  • Handle: RePEc:prg:jnlaop:v:2016:y:2016:i:2:id:527:p:33-45
    DOI: 10.18267/j.aop.527
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    More about this item

    Keywords

    heuristics; biases; behavioural finance; risk preferences; overconfidence; over-optimism; limited attention; availability heuristics; corporate governance;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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