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Behavioural Theory and MNE Decision Making: Changing the Narrative in International Business Management

Traditional international management theories do not account for the cognitive limitations and biases of decision-makers which bound their ability to make rational choices. Most theories have not truly accounted for firm heterogeneity, i.e. in the similar contexts, two firms may make different choices. This heterogeneity is not always rooted in differences in ‘firm-specific’ or ‘ownership’ advantages. We zoom in on how behavioural concepts, such as cognitive limitations, availability biases and heuristics, complement extant theorising. This chapter discusses the importance of using theories that make more realistic assumptions about decision makers and are thus more suited to claim managerial relevance.

“If we are uncritical we shall always find what we want: we shall look for, and find, confirmations, and we shall look away from, and not see, whatever might be dangerous to our pet theories.”

Karl Popper (1957: 124)

Keywords: behavioural theories, bounded rationality, cognitive limitations and biases, heuristics, strategic reference points, dynamic MNE choices

JEL Classifications: F23, D90

Published on 7th July 2020
Authors Professor Rajneesh Narula
Series Reference JHD-2020-04