Literature Review of Decision Behavior Biases of Enterprise Managers – Case study of overconfidence

Abstract

In the era when knowledge operation becomes an economic growth mode, knowledge industry becomes a leading industry and knowledge economy becomes a new economic form, company operation ad management become more important. However, in company operation process, if managers make decision by virtue of their personal long-term management experience and traditional economic theories, they will show unadvisable behaviors. Managers must fully envisage behavioral situations of decision-making biases to help them better understand decision finiteness. This paper mainly knows deviant behaviors which may be caused by psychological factors of managers in investment decision-making process from the perspective of behavioral finance. Based on analysis of " overconfidence " , this paper analyzes main causes of decision-making biases in the face of much information available and puts forward suggestions for enterprise managers as their reference in decision-making process. In business operation process, decision-making behavior of enterprise managers (generally refer to enterprise leaders owning decision-making power or investors) has been an important factor influencing enterprises' sustainable development. During making investment decision, decision makers often be based on investment decision-making theories in modern corporate finance, perfect capital market, information symmetry and other strict assumed conditions. Although traditional corporate finance has scientific basis and enterprise managers can gain methods about how to make decisions from investment theories, it is also found that among investment decisions made by enterprise managers, many decision-making behaviors are irrational. Thus, enterprise operation risk increases. Many excessive investments and insufficient investments form. Even, there is investment fault phenomenon. The reasons are various. But these traditional decision modes fail to consider " human " factor. This is a significant cause influencing decision-making biases. The emergence and development of behavioral finance can explain irrational financial decision problems caused by human factor. I. Research limitations of modern corporate finance and development of behavioral finance In modern corporate finance, the main analysis mode is based on two important postulated conditions: 1) human beings are rational economic persons; 2) human beings are selfish. Under the prediction of such hypotheses, coupled with mathematic logical system and statistic verification skills, corporate finance analysis mode and rational results are gained after a series of deduction. These decision-making analysis processes are excellent in terms of rigorous theories and can further propose solutions, so they are valued by government sector and enterprises. However, in realistic society, many economic phenomena cannot be interpreted by these theories. For the convenience for analysis and conclusions, scholars call such phenomena " abnormal phenomena " or " contradictory phenomena " .