Decisions by small and medium enterprise (SME) entrepreneurs are plagued by a variety of cognitive biases. Extant literature has mainly focused on a limited number of important biases (e.g., ...overconfidence) in a handful of important entrepreneurial decisions (e.g., start-up, market entry or exit). However, putting the spotlight on a few important biases and entrepreneurial decisions could leave other important biases and decisions underexposed. SME accountants are in a unique position to shed a broader light on this issue. SME entrepreneurs often seek advice of their accountants when they struggle with decisions that involve uncertainty and business risks in the domains of strategy, regulatory compliance, human resources, IT, and succession. In this study, we explore 12 different biases and analyze whether their importance can change across these decision domains. Interviews were performed with 14 SME accountants who provide an independent third-party view on decision making by over 3000 entrepreneurs. Our findings suggest that the importance of most of these biases varies from one decision domain to the other. We also identified four approaches (warn, inform, intervene, and coach) that accountants can take when entrepreneurs may fall victim to biases. We discuss the implications for research and practice of SME entrepreneurs and their accountants.
Escalation of commitment causes people to continue a failing course of action. We study the role of construal level in such escalation of commitment. Consistent with the widely held view of construal ...level as a primed effect, we employed a commonly used prime for manipulating this construct in a laboratory experiment. Our findings revealed that the prime failed to produce statistically significant differences in construal level, which was measured using the Behavior Identification Form (BIF). Furthermore, there was no effect of the prime on escalation of commitment, or on constructs that have previously been linked to construal level such as the perceived importance of feasibility considerations relative to desirability considerations, and the number of pros and cons that subjects can think of.
Interestingly, however, subjects’ actual construal level scores on the BIF were found to significantly affect escalation. Specifically, our findings show that people with a low construal level are less willing to continue a failing project. This relation is mediated by the perceived importance of the feasibility of the project relative to its desirability. For people with a low construal level, the perceived importance of feasibility relative to desirability is higher, which in turn makes escalation of commitment less likely.
Our findings are consistent with prior research suggesting that priming construal level may not always be effective. Thus, while construal level has typically been regarded as a state-like variable that can be primed, in this study, we show that construal level may also be considered as a trait.
Many information systems (IS) projects encounter significant problems. The literature suggests that decision-makers can be misled by overoptimistic estimates. We argue that such overoptimism may also ...be present in the choice of language in business cases. In this study, we analyzed the usage of such framing in 20 business cases for large IS projects of the Dutch government. Our findings show that newly proposed systems are systematically framed using positive adjectives, whereas the existing systems are framed using negative adjectives. This pattern of framing may subconsciously bias the decision-makers toward investing in new IS projects.
Many Information Systems (IS) projects fail to be completed within budget and on schedule. A contributing factor is the so-called planning fallacy in which people tend to underestimate the resources ...required to complete a project. In this paper, we propose that signals of the planning fallacy can be detected in a project's business case. We investigated whether language usage in business cases can serve as an early warning signal for overruns in IS projects. Drawing on two theoretical perspectives - the Linguistic Category Model (LCM) and Construal Level Theory (CLT) - two sets of rival hypotheses were tested concerning the relationship between project overruns and whether the language usage in a business case is abstract or concrete. A linguistic analysis of the business cases of large IS projects in the Netherlands suggests that concrete language usage in the business case is associated with bigger budget and schedule overruns. For researchers, our study contributes to the existing literature on the importance of language usage. For practitioners, our study provides an early warning indicator for overruns.
This study explores how project names may influence the tendency to escalate commitment through two experiments. Our findings from Experiment 1 show that a positive project name evokes positive ...affective reactions to the project. These, in turn, are associated with a greater willingness to continue a failing project. Results from Experiment 2 show that a technological project name can similarly evoke more positive affective reactions and a greater willingness to continue but only for decision makers with high technology readiness. For decision makers with low technology readiness the effect was reversed.
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