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The Effectiveness of Simple Decision Heuristics: Forecasting Commercial Success for Early-Stage Ventures

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  • Thomas Åstebro

    (Joseph L. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario M5S 3E6, Canada)

  • Samir Elhedhli

    (Department of Management Sciences, University of Waterloo, Waterloo, Ontario N2L 3G1, Canada)

Abstract

We investigate the decision heuristics used by experts to forecast that early-stage ventures are subsequently commercialized. Experts evaluate 37 project characteristics and subjectively combine data on all cues by examining both critical flaws and positive factors to arrive at a forecast. A conjunctive model is used to describe their process, which sums "good" and "bad" cue counts separately. This model achieves a 91.8% forecasting accuracy of the experts' correct forecasts. The model correctly predicts 86.0% of outcomes in out-of-sample, out-of-time tests. Results indicate that reasonably simple decision heuristics can perform well in a natural and very difficult decision-making context.

Suggested Citation

  • Thomas Åstebro & Samir Elhedhli, 2006. "The Effectiveness of Simple Decision Heuristics: Forecasting Commercial Success for Early-Stage Ventures," Management Science, INFORMS, vol. 52(3), pages 395-409, March.
    • Handle: RePEc:inm:ormnsc:v:52:y:2006:i:3:p:395-409
    DOI: 10.1287/mnsc.1050.0468
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    References listed on IDEAS

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