In one definition of the field, "Behavioral strategy merges cognitive and social psychology with strategic management theory and practice.
Behavioral strategy aims to bring realistic assumptions about human cognition, emotions, and social behavior to the strategic management of organizations and, thereby, to enrich strategy theory, empirical research, and real-world practice" [1] (Powell, Lovallo & Fox, 2011: 1371).
More specifically, behavioral strategy is as an approach to core issues in strategic management (e.g., CEO and top management team behaviors, entry decisions, competitive interaction, firm heterogeneity) with the following characteristics: 1) It is microfoundational [2] (Felin, Foss, & Ployhardt, 2015) in the sense that a psychology-based understanding of the actions and interactions of individuals is used to explain strategy phenomena, often on a higher level of analysis; 2) all fields of psychology, as well as relevant parts of behavioral economics and sociology, are seen as potentially applicable to, in principle, any strategic management phenomenon; 3) assumptions about behaviors and interactions are to be based in evidence (e.g., brought about by means of experiments) rather than the extent to which these allow for mathematical tractability, are "elegant" or similar.
In terms of methods, behavioral strategy follows strategy research in general by being pluralist, such that qualitative research, lab and field experiments, and agent based modelling, in addition to conventional quantitative and formal methods are all acceptable.
The other is how investors who aren't completely rational can cause market prices to vary from their underlying values.
The first strand of research examines how investors act in order to determine how investing strategies should meet their desires.
The second strand of research examines how investor behavior may influence market functioning; It's used to determine whether active investment managers will find it simpler to outperform (the short answer is "no").
This research arose from a series of experiments that yielded significant findings about the biases that influence how people make decisions and create preferences.
Simon's research also led him to four categoric observations on variations in ability to solve complex problems and make decisions.
[7] The use of psychology insights to further research in the behavior and performance of firms has a long history, including research on the behavioral theory of the firm (Cyert & March, 1963; Gavetti, Levinthal, and Ocasio, 2007), aspirations (Greve, 1998), attention (Ocasio, 1997), emotions (Nickerson & Zenger, 2008), goals (Lindenberg & Foss, 2011), cognitive schema, maps, sensemaking, and cognitive rivalry (Porac and Thomas, 1990; Reger and Huff, 1993; Lant and Baum, 1995; Weick, 1995), routines (Cyert & March, 1963), decision theory (Kahneman and Lovallo, 1993), escalation (Staw and Cummings, 1981), motivation, (Foss & Weber, 2016), hubris (Bollaert and Petit, 2010), and top management teams (Hambrick and Mason, 1984), dominant logic (Prahalad & Bettis, 1986), competitive interaction (Chen, Smith & Grimm, 1992), and learning (Levinthal and March, 1993).
In their editorial essay Powell et al. outline three reasons why there is a need for a concerted research effort in behavioral strategy, namely that strategy has been too slow to incorporate relevant results from psychology, lacks adequate psychological grounding (e.g., heterogeneity is assumed and not explained in terms of reasoning and decision-processes), but recent developments (e.g., cognitive neuroscience developments which make it possible to link strategic decision-making and brain activity) have paved the way for a closer and more coherent integration of the cognitive sciences and strategy.
In an article published the year after the Powell et al. article Rindova, Reger, and Dalpiaz (2012) refer to a "'sociocognitive' perspective" in strategy which, "while varied in its theoretical framings, focuses on the roles of managers' and observers' attention; the bounded rationality of their cognitions, intuitions, and emotions; and the use of biases and heuristics to socially construct "perceptual answers" to traditional strategic management questions about how firms obtain and sustain competitive advantage."
For example, Hambrick and Crossland adopt an imagery of alternatively sized tents of behavioral strategy.
Behavioral strategy focuses on top managers’ cognitive processes and emphasizes collaboration and communication patterns.
Effective and intuitive reasoning plays a significant role in strategy formulation, it comes to influence organizational and managerial cognition.
The field of Behavioral strategy has gained significant attention in academic circles, with issues and volumes dedicated to it in prestigious conferences and publications.
[8] (The study undertakes citation-based systematic literature review to provide a better understanding of behavioral strategy.
It addresses the lack of reviews in literature, it aims to illuminate the key sources, contributors, and contribution in the field.
Behavioral strategy provides psychologically based interpretations that can illuminate how individuals and organizations respond to such disruptions.
Some decision-makers treated extreme model projections as deterministic predictions rather than recognizing them as improbable worst-case scenarios.
It was impossible to forecast the economic and social consequences of the lockdown, and its effectiveness, and yet decision-makers decided to implement this worst-case scenario.
[10] Decision-makers appeared to overlook the consequences of or misunderstand the lack of error margins around initial forecasts.
When decision-making problems are ill-structured and require quick action, relying solely on formal models and forecasts can be problematic.
COVID-19 highlighted how behavioral strategy frameworks don’t allow dealing with uncertainty beyond standard treatments of risky decision-making.
Stakeholder Relationships and Social Welfare: A Behavioral Theory of Contributions to Joint Value Creation.
University of Illionois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship.
Putting Opportunism in the Back Seat: Bounded Rationality, Costly Conflict and Hierarchical Forms.
In M. Augier, C. Fang & V. Rindova, eds., Behavioral Strategy in Perspective (Advances in Strategic Management) 39: 22–39.
Cognitive sources of socially constructed competitive groups: Examples from the Manhattan hotel industry.
Managing Motivation for Joint Production: The Role of Goal Framing and Governance Mechanisms.