An Experiment on Executive Decision Making.

Abstract

This paper analyzes capital budgeting decisions of business executives in an experimental setting. Two different data analysis techniques, a linear programming and a maximum likelihood method, are used to analyze preference judgements for hypothetical investment projects. For each of the twenty investment projects the following information was provided: a probability distribution of returns on investment, and magnitude of the investment, the number of additional men to be hired for implementing the investment, and the expected payback period for the investment. Five conclusions are demonstrated based on two independent experiments with business executives: Mean return on investment, and payback period, are the most important investment characteristics; Upper and middle management executives have almost identical preference structures; Downside variation of the return distribution has a stronger influence on investment decisions than overall variations; Usefulness of this methodology for (1) analyzing preference judgments of individual executives; (2) training purposes; and (3) as an aid to organizational decision making; and Both data analysis techniques give highly similar conclusions. (Author)

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Document Details

Document Type
Technical Report
Publication Date
Jul 01, 1977
Accession Number
ADA047888

Entities

People

  • Eduard J. Fidler
  • Gerald L. Thompson

Organizations

  • Carnegie Mellon University

Tags

Communities of Interest

  • Human Systems

DTIC Thesaurus Topics

  • Chi Square Test
  • Commerce
  • Data Analysis
  • Data Science
  • Executives
  • Information Science
  • Investments
  • Judgment
  • Linear Programming
  • Money
  • Probability
  • Regression Analysis
  • Schools
  • Statistical Analysis
  • Surveys
  • Training
  • Universities

Readers

  • Government and Public Administration Law.
  • Life Cycle Cost Analysis
  • Vision Science/Vision Psychology/Cognitive Neuroscience.