Abstract
The key premise of economics, which views people as utilitarian individuals who make completely rational economic decisions, has influenced other disciplines as Strategy. However, the developments in behavioural neuroscience have opened a major understanding of the mental processes that explain managers's behaviour and effectiveness.This article presents a review of the contributions from behavioural neuroscience to the study of managerial decision-making and offers a critical evaluation of its implications for management and organization studies, especially in the field of strategy. The paper reviews the most recent literature on neurostrategy and maps out the main strands of the debate and their implications for understanding the behaviour of strategy-makers. The study of neuronal and psicological foundations for strategy-makers behaviours and decision-making has identified the problems of the general model of the rational problem-solving process in information, perception, and selection of strategies, and how behavioural strategy can help us to identify them and prevent them.
TopIntroduction
One of the most prominent and fascinating advances that have helped us to understand many of the facets of human behaviour in organizations is the rise of the interdisciplinary approach. This is especially true when it comes to the role played by management experts in formulating and implementing their organization’s strategy, and in the subsequent results. Of all the disciplines that currently have implications for strategy, particularly notable is the interdisciplinary contribution from the field of neuroscience (Butler, 2014). Following the path opened up by the Human Genome Project, neuroscience took an exponential leap forward when the United States government declared the 1990s to be the Decade of the Brain. The rapid expansion in research continued during the first decade of the 21st century, known as the Decade of the Mind. The advances made in our understanding of the complex network of interconnections between the language of the brain and of the mind has radically expanded the frontiers of neuroscientific knowledge.
More advanced knowledge about the human brain has brought with it a deeper understanding of its internal functioning. At the same time, this has called into question the key premise of economics, which views people as utilitarian individuals who make completely rational economic decisions. Since economics has thus far been the most influential discipline behind strategy theory, managers should attempt to understand the principles of behavioural neuroscience (Glimcher & Rustichini, 2004; Lieberman, 2006). This field highlight the capabilities of the human brain; however, it also raises awareness of its inherent risks, habits and oversimplifications and their implications in terms of decision-making, given that they are behind a lot of bad economic and business decisions.
Although the study of the biological bases of human behaviour in organizations is still in its infancy (Zyphur et al., 2009: 70) and the application of this knowledge to managerial practice does not seem to be on the immediate horizon (Balthazard et al., 2012; Peterson et al., 2008; Waldman et al., 2011), there is a broad current of thought endorsing the benefits of neuroscientific decision-making research and the role played by emotions, gestures and symbols, semantic processing, human interactions and neuronal connections, almost to the point of putting knowledge of the human brain at the very core of modern management. In 2004, the magazine Frontiers in Human Neuroscience published a special issue on Society, organizations and the brain. In the field of management, it is worth mentioning the study on “Information, attention and decision making” published by the Academy of Management Journal in June 2015.
Hannah et al. (2013) describe a cognitive revolution driven by an understanding of the mental processes that explain people’s behaviour and effectiveness. They argue that this paves the way for a multidisciplinary and multi-method approach to the conceptualization of organizations and their management. Neuroscientific research applied to human behaviour in organizations could thus be seen as providing profoundly innovative, heterodox and even radical ideas, and it may also give rise to new approaches and methods aimed at uncovering the human decision-making process, in a way that would otherwise be unattainable. This could represent a significant step forward in knowledge about how to more effectively design and govern social groups with predetermined objectives.
Key Terms in this Chapter
Bounded Rationality: Paradigm that explains agents’ strategic decision-making based on the imperfect information available to them and the expectations they have that dictate whether they will view the results as satisfactory. It leads on to the idea of adaptive learning and trial-and-error processes.
Neuromanagement: Scientific field that relies on organizational cognitive neuroscience and technology to explore the brain activity and mental processes involved when people face typical management problems, such as decision-making, as well as other key social behaviours in organizations such as leadership or teamwork.
Behavioural Economics: A field dedicated to the study of non-rational choice behaviour and its impact on human health and well-being. The principal differences between this and the dominant economic paradigm is that it takes into account irrationality and environmental influences on the dynamics of choice behaviour.
Prospect Theory: The central postulate of this approach, proposed by Kahneman and Tversky, is that, in conditions of uncertainty, people do not make decisions based on the probability of greater gains but rather guided by a series of heuristics.
Cognitive Biases: These are irrational prejudices that appear in economic and financial decisions, which influence individuals’ decision-making preferences. They include loss aversion, sunk cost fallacy or reward discounting.
Behavioural Cognitive Neuroscience: Interdisciplinary field bringing together neuroscientists, economists and psychologists, applying behavioural neuroscience theories and methods to the organizational field, mainly to understand the biological underpinnings of decision-making.
Neurostrategy: This is the discipline dedicated to uncovering the process of formulating and implementing an organization’s strategy, by examining the biological determinants of the functioning of the strategy-maker’s brain.