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

  • PELI, Gábor
  • SCHENK, Hans

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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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
Contact details of provider: Postal: Prinsstraat 13, B-2000 Antwerpen
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  1. Patrizio Bianchi & Sandrine Labory (ed.), 2006. "International Handbook on Industrial Policy," Books, Edward Elgar, number 3451, March.
  2. Town, R J, 1992. "Merger Waves and the Structure of Merger and Acquisition Time-Series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S83-100, Suppl. De.
  3. Christophe Boone & Walter Hendriks, 2009. "Top Management Team Diversity and Firm Performance: Moderators of Functional-Background and Locus-of-Control Diversity," Management Science, INFORMS, vol. 55(2), pages 165-180, February.
  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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