FINANCIAL DECISION-MAKING WITH IMPLEMENTATION OF BOUNDED RATIONALITY ASSUMPTION: ESCALATION OF COMMITMENT IN LOSING PROJECTS (Financne rozhodovanie v podmienkach obmedzenej racionality: eskalacia angazovanosti...
FINANCIAL DECISION-MAKING WITH IMPLEMENTATION OF BOUNDED RATIONALITY ASSUMPTION: ESCALATION OF COMMITMENT IN LOSING PROJECTS (Financne rozhodovanie v podmienkach obmedzenej racionality: eskalacia angazovanosti v stratovych projektoch)
Financial decision-making is characterized by seeking the optimal solution, exploiting the available resources and utility maximizing under assumption of rational decision-making. Decision-making under uncertainty implicitly requires the acceptance of risk of states of the worlds and the acceptance of possible consequences of risk alternatives. On the contrary there are a lot of empirical examples of managers' propensity to the incorporation of irrelevant factors to the decision making process. Irrelevant factors are based on internal feeling of managers, elimination of regret with the aim to hide individual failure of managers and admitting mistakes of responsible managers. Conducted economic experiment focused on the escalation of commitment in losing projects.
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