1976 cyert and march 1963 whilst these studies are

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Unformatted text preview: gated investment decision-making in complex business environments where there is substantial risk and uncertainty and each investment decision requires significant capital expenditure without the prospect of revenues for many years. Decision analysis (Raiffa, 1968; Howard, 1968; Raiffa and Schlaifer, 1961) is a label given to a normative, axiomatic approach to investment decision-making under conditions of risk and uncertainty (Goodwin and Wright, 1991). By using any one, or a combination, of decision analysis techniques, the decision-maker is provided with an indication of what their investment decision ought to be, based on logical argument (Clemen, 1999). Previous research into the usage of decision analysis by companies has typically been survey-based and produced evidence of a difference between the decision analysis techniques described in the literature, and the decision analysis tools which practitioners choose to use (for example see studies by Arnold and Hatzopoulous, 1999; Carr and Tomkins, 1998; Schuyler, 1997; Buckley et al., 1996 Fletcher and Dromgoole, 1996; Shao and Shao, 1993; Kim et al., 1984; Stanley and Block, 1983; Wicks Kelly and Philippatos, 1982; Bavishi, 1981; Oblak and Helm, 2 1980; Stonehill and Nathanson, 1968). It appears that whilst decision analysts describe a range of decision analysis techniques, some of which are very sophisticated, organisational decision-makers are choosing to utilise only the most simplistic tools and concepts in their investment decision-making (Atrill, 2000). However, the methodological approaches adopted by the researchers conducting these studies precluded them from providing any explanation into the reasons why some techniques fail to be implemented and others succeed (Clemen, 1999). Consequently, some writers, typically behavioural decision theorists such as Tocher (1976 and 1978 reprinted in French, 1989), have explained the results by arguing that decision-makers choose not to use decision analysis techniques because their use adds no value to organisations’ investment decision-making processes since decision analysis does not aim to predict what decision-makers will do, only to suggest what they ought to do. Clemen (1999) offers another interpretation. He believes that at least one reason why decision analysis techniques and concepts are not widely used by organisations is that no study to date has provided evidence that organisations that use decision analysis tools perform better than those companies that do not. Despite over four decades of research undertaken developing decision analysis tools, understanding the behavioural and psychological aspects of investment decision-making and applying decision analysis to practical examples, no research has been able to show conclusively what works and what does not. Clemen (1999) believes that to rectify this situation, future studies into investment decision-making should investigate the relationship between organisational performance and the use of decision analysis techniques. If, as many decision analysts believe (for example, French, 1989), companies that use decision analysis in investment decision-making outperform thos...
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This document was uploaded on 03/30/2014.

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