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Organizational decision-maker bias supports market wave formation: Evidence with logical formalization

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  • PELI, Gábor
  • SCHENK, Hans

Abstract

Imitation of first-mover firms in opting for a merger or acquisition (M&A) facilitates merger-wave formation. Empirical evidence suggests that, under uncertainty of outcomes, firms regret more not following their rivals’ strategy than possibly failing jointly by copying it. We explore the outcomes and look for underlying behavioral assumptions in that decision-making framework by modal logic. Biased expectations, represented by the B (belief) modal operator, filter out relevant scenarios from managerial consideration. The theorems highlight the drive to imitate first-mover M&As. Our approach goes against the view that human behavior, being non-logical in many respects, defies logic-based rendering. Logic is a flexible representation tool that can model even faulty behavior in a transparent way, also exploring the consequences of the cognitive mistakes made. Our findings suggest that threats to wealth creation may not necessarily find their origins in morally dubious organizational behavior, but rather in modalities of decision making under uncertainty.

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File URL: https://www.uantwerpen.be/images/uantwerpen/container1244/files/TEW%20-%20Onderzoek/Working%20Papers/RPS/2011/RPS-2011-006%20ACED%2011.pdf
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Bibliographic Info

Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2011006.

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Length: 26 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:ant:wpaper:2011006

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Postal: Prinsstraat 13, B-2000 Antwerpen
Web page: https://www.uantwerp.be/en/faculties/applied-economic-sciences/
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Keywords: Mergers; Perception bias; Adaptation; Logical formalization;

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  1. Klaus Gugler & Dennis C. Mueller & B. Burçin Yurtoglu, 2006. "The Determinants of Merger Waves," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) SP II 2006-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  2. Christophe Boone & Walter Hendriks, 2009. "Top Management Team Diversity and Firm Performance: Moderators of Functional-Background and Locus-of-Control Diversity," Management Science, INFORMS, INFORMS, vol. 55(2), pages 165-180, February.
  3. Town, R J, 1992. "Merger Waves and the Structure of Merger and Acquisition Time-Series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(S), pages S83-100, Suppl. De.
  4. William P. Barnett & Olav Sorenson, 2002. "The Red Queen in organizational creation and development," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 289-325.
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