Risk and decision making by finance executives: a survey study

Abstract

Purpose - When finance managers face decisions, they do not always make clinical evaluations using rational methodology, but systematically depart from utility maximisation. This article addresses biases that are related to risk propensity, and categorises them under five headings: decision makers' characteristics and perception; reference levels; mental accounting and the assumption of mean reversion; the longshot bias or overconfidence; and the desire for immediate gratification. The research reported in the paper seeks to understand the mechanisms of these biases using a study of decision making by Australian finance executives in a setting that is representative of a typical business dec..