Decision‐making biases in the alliance life cycle

Abstract

PurposeThe purpose of this conceptual paper is to examine how a focal firm's decision‐making biases at each stage of the alliance life cycle can cause alliance failures such as premature termination and less‐than‐expected productivity.Design/methodology/approachA dyadic decision‐making approach is used to examine the consequences of decision‐making biases in the evolution of alliances. Concrete cases are presented to substantiate the arguments.FindingsPaying insufficient attention to an alliance partner's behavior causes different judgmental mistakes or decision‐making biases at different stages of the alliance life cycle. These biases can lead to alliance failure.Research limitations/implicationsDyadic decision making provides a framework to explain persistent but poorly understood dysfunctional behavior in alliances. Although previous authors have acknowledged that safeguards and trust are effective ways to reduce dysfunctional behavior, their mechanisms are still unclear. The paper's arguments suggest that decision‐making biases may serve as crucial mediators of the relationship between governance designs (safeguards or trust) and alliance outcomes. Future work can provide evidence to verify this postulate.Practical implicationsDecision‐making biases emerge in the evolution of alliances and influence alliance performance. Understanding the influence of biases helps to prevent their negative effects and reduces the probability of alliance failure.Originality/valueDyadic decision making provides a behavioral framework that complements traditional economic and organizational perspectives in explaining interorganizational decision‐making outcomes in the real world. Three kinds of biases – overconfidence, single outcome calculation, and adjustment and anchoring – are discussed in the paper. The paper addresses how these biases can emerge in the alliance life cycle and lead to various types of dysfunctional behavior, which, in turn, may cause alliance failures such as premature termination and less‐than‐expected productivity.

Selection and institutional shareholder activism in Chinese acquisitions

“…Decision makers such as the controlling shareholders, management and the institutional shareholders who are strategic alliances within the PLCs (Todeva and Knoke, 2005), cannot simultaneously consider or process all the variables and data involved in a decision as complex as acquisition. Hence, uncertainty of acquisition market and overconfidence of alliance partners may cause decision-making biases of alliance partners and possibly fail the alliance and acquisition proposal (Chao, 2011).…”

“…One of the most extreme views is taken by Williamson who rejects the usefulness of the concept of trust and believes instead that the economics of contracts should be based upon an assumption of opportunism (Williamson, 1993). Chao (2011) also argues that in dyadic decision making, when a focal firm gives insufficient consideration to the contingent behaviour of its partner, the firm is susceptible to three types of overconfidence: overoptimistically judging the likelihood that the alliance will result in a good outcome; overestimating its ability to manage the alliance so as to deliver the desired outcome; and overestimating the benefits of its relationship with the partner and trusting the partner too much. If a focal firm trusts its partner excessively, it may neglect the development of appropriate formal controls and rely too much on informal controls, such as trust or a previous working model, to govern interactions with its partner.…”

An entrepreneur's social capital and performance

“…For instance Brown and Butler (1995) analyze the impact of competitors' social networks on the performance of a company and show how the investment of time and resources in the creation and maintenance of such networks is directly associated with growth in sales. Other papers show that the establishment of networks with other companies also enhances performance (Lee et al, 2001;Andersén, 2011;Appelbaum et al, 2011) as well as the creation of network alliances to share information, and provide a low level of redundancy and conflict (Baum et al, 2000;Sebora and Theerapatvong, 2010;Chao, 2011). Focusing on entrepreneurship literature, several studies show the positive effects of social capital from the very beginning of an entrepreneurial project and also throughout the life of the start-up.…”

Heurística da Ancoragem na Decisão de Especialistas: Resultados Sob Teste de Manipulação

“…Sob essa ótica, Bazerman (2004) afirma que ocorre um viés cognitivo quando os indivíduos empregam uma heurística de maneira inadequada durante seu processo decisório. Chao (2011) entende que os decisores tendem a se basear em heurísticas sob condições de incerteza, buscando, dessa forma, reduzir a complexidade do problema. As heurísticas são, então, processos que reduzem tarefas complexas de avaliar, com o intuito de simplificar a operação de julgamento (Costa, 2017).…”