When Making Bad Decisions Becomes Habit: Modelling the Duration of Making Systematically Bad Decisions

Economic Computation and Economic Cybernetics Studies and Research, Issue 1/2016, Vol. 50

18 Pages Posted: 14 Apr 2016

See all articles by Victor Dragota

Victor Dragota

Bucharest University of Economic Studies

Date Written: March 15, 2016

Abstract

Most part of the models in economics and finance assume that, in general, deciders make good decisions, and bad decisions occur only as exception. This paper analyses some conditions in which bad decisions are made systematically and proposes a model for the estimation of the duration of making systematically bad decisions. Even if individuals are making systematically bad decisions, they can remain in power in many organizations for a long period. Based on Monte Carlo simulations, this paper proves that, in some circumstances, the duration of making systematic bad decisions can be very long.

Keywords: decision-making, homogeneous behaviour, rationality, corporate finance, decisional abilities, behavioural finance

JEL Classification: G30, L21

Suggested Citation

Dragota, Victor, When Making Bad Decisions Becomes Habit: Modelling the Duration of Making Systematically Bad Decisions (March 15, 2016). Economic Computation and Economic Cybernetics Studies and Research, Issue 1/2016, Vol. 50, Available at SSRN: https://ssrn.com/abstract=2761594

Victor Dragota (Contact Author)

Bucharest University of Economic Studies ( email )

Piața Romană 6
Bucharest, 010374
Romania

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