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Extensions of Bowman's Theory on Managerial Decision-Making

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  • Howard Kunreuther

    (University of Chicago)

Abstract

Bowman has developed a theory which claims that a manager makes good decisions on the average but that he may exhibit a high variance in his behavior. This paper proposes three general criteria which must be satisfied for this theory to have validity. These tests are then used to evaluate a production planning model for an electronics firm where the rules are based on "average" past behavior. Several interesting results emerge when comparing the production plans based on an "average" rule with the actual plans for the company. When the manager has limited information regarding future sales, as when he develops his initial production estimates, then a plan based on average behavior performs considerably better than actual initial plans. However, when environmental cues provide reliable information on future sales of specific items (as when revisions are made) then actual decisions are clearly superior to those suggested by an average rule. This case study offers insight into the potential usefulness as well as the limitations of Bowman's hypothesis. Suggestions for future research in this general area conclude the discussion.

Suggested Citation

  • Howard Kunreuther, 1969. "Extensions of Bowman's Theory on Managerial Decision-Making," Management Science, INFORMS, vol. 15(8), pages 415-439, April.
    • Handle: RePEc:inm:ormnsc:v:15:y:1969:i:8:p:b415-b439
    DOI: 10.1287/mnsc.15.8.B415
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    Cited by:

    1. Marvin D. Troutt & Wan-Kai Pang & Shui-Hung Hou, 2006. "Behavioral Estimation of Mathematical Programming Objective Function Coefficients," Management Science, INFORMS, vol. 52(3), pages 422-434, March.
    2. Prem Vrat & Sunaina Sangwan, 2016. "Employability Models for Consistency in Quality of Hiring Decisions: A Context of MBA Graduates," Vision, , vol. 20(4), pages 323-330, December.
    3. Bruce Kogut & Nalin Kulatilaka, 2001. "Capabilities as Real Options," Organization Science, INFORMS, vol. 12(6), pages 744-758, December.
    4. Grubbstrom, Robert W. & Wikner, Joakim, 1996. "Inventory trigger control policies developed in terms of control theory," International Journal of Production Economics, Elsevier, vol. 45(1-3), pages 397-406, August.
    5. Yael Karlinsky-Shichor & Oded Netzer, 2024. "Automating the B2B Salesperson Pricing Decisions: A Human-Machine Hybrid Approach," Marketing Science, INFORMS, vol. 43(1), pages 138-157, January.
    6. Gatignon, Aline & Gatignon, Hubert, 2010. "Erin Anderson and the Path Breaking Work of TCE in New Areas of Business Research: Transaction Costs in Action," Journal of Retailing, Elsevier, vol. 86(3), pages 232-247.
    7. Ujwal Kayande & Arnaud De Bruyn & Gary L. Lilien & Arvind Rangaswamy & Gerrit H. van Bruggen, 2009. "How Incorporating Feedback Mechanisms in a DSS Affects DSS Evaluations," Information Systems Research, INFORMS, vol. 20(4), pages 527-546, December.

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