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Behavioural Issues in Portfolio Decision Analysis

In: Portfolio Decision Analysis

Author

Listed:
  • Barbara Fasolo

    (London School of Economics and Political Science)

  • Alec Morton

    (Management Science Group)

  • Detlof Winterfeldt

    (International Institute for Applied Systems Analysis)

Abstract

The aim of this chapter is to review some behavioural issues in portfolio choice and resource allocation decisions, with a focus on their relevance to Portfolio Decision Analysis. We survey some of behavioural literature on the most common heuristics and biases that arise in and can interfere with resource allocation processes. The common idea behind this behavioural literature is that of cognitive or motivational failure as an explanation for the violation of normative models. Then, we reflect on the relevance of this literature by drawing from the authors’ personal experiences as decision maker or decision analyst in real world resource allocation settings. We argue that justifiability can also be a reason for the normative violations. We conclude by discussing ways in which an analyst might approach debiasing.

Suggested Citation

  • Barbara Fasolo & Alec Morton & Detlof Winterfeldt, 2011. "Behavioural Issues in Portfolio Decision Analysis," International Series in Operations Research & Management Science, in: Ahti Salo & Jeffrey Keisler & Alec Morton (ed.), Portfolio Decision Analysis, chapter 0, pages 149-165, Springer.
    • Handle: RePEc:spr:isochp:978-1-4419-9943-6_7
    DOI: 10.1007/978-1-4419-9943-6_7
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    Citations

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    Cited by:

    1. Carlos A. Bana e Costa & João Carlos Lourenço & Mónica Duarte Oliveira & João C. Bana e Costa, 2014. "A Socio-technical Approach for Group Decision Support in Public Strategic Planning: The Pernambuco PPA Case," Group Decision and Negotiation, Springer, vol. 23(1), pages 5-29, January.
    2. Marttunen, Mika & Belton, Valerie & Lienert, Judit, 2018. "Are objectives hierarchy related biases observed in practice? A meta-analysis of environmental and energy applications of Multi-Criteria Decision Analysis," European Journal of Operational Research, Elsevier, vol. 265(1), pages 178-194.
    3. Mavrotas, George & Makryvelios, Evangelos, 2021. "Combining multiple criteria analysis, mathematical programming and Monte Carlo simulation to tackle uncertainty in Research and Development project portfolio selection: A case study from Greece," European Journal of Operational Research, Elsevier, vol. 291(2), pages 794-806.
    4. Rudolf vetschera & Jonatas Araùjo de Almeida, 2021. "Bounds in Tree-Based Approaches to Generate Project Portfolios in the Presence of Interactions," International Journal of Decision Support System Technology (IJDSST), IGI Global, vol. 13(4), pages 1-21, October.
    5. Gilberto Montibeller & Detlof von Winterfeldt, 2015. "Cognitive and Motivational Biases in Decision and Risk Analysis," Risk Analysis, John Wiley & Sons, vol. 35(7), pages 1230-1251, July.
    6. Baker, Erin & Bosetti, Valentina & Salo, Ahti, 2020. "Robust portfolio decision analysis: An application to the energy research and development portfolio problem," European Journal of Operational Research, Elsevier, vol. 284(3), pages 1107-1120.

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