Putting Rational Blinders Behind Us: Behavioural Understandings of Finance and Strategic Management

Both financial economics and neoclassical economic approaches to strategy attempt to understand the operation of competitive markets assuming market equilibrium and optimising agents. These assumptions imply no strategies can exist that consistently outperform the market. However, behavioural financ...

Full description

Saved in:
Bibliographic Details
Published in:Long range planning 2003-02, Vol.36 (1), p.37-48
Main Authors: Bromiley, Philip, James-Wade, Sharon
Format: Article
Language:English
Subjects:
Economic theory
Strategic management
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Both financial economics and neoclassical economic approaches to strategy attempt to understand the operation of competitive markets assuming market equilibrium and optimising agents. These assumptions imply no strategies can exist that consistently outperform the market. However, behavioural finance results clearly demonstrate this implication is wrong. For strategic management, a theory that implies no rules exist to outperform the market cannot explain why some firms consistently perform better than others. This paper argues that a behavioural perspective of strategic management offers a coherent framework and set of assumptions that better inform the problems strategic management scholars attack.
ISSN:0024-6301
1873-1872
DOI:10.1016/S0024-6301(02)00199-1