Hostname: page-component-8448b6f56d-cfpbc Total loading time: 0 Render date: 2024-04-18T17:58:11.094Z Has data issue: false hasContentIssue false
  • English
  • Français

The contribution of behavioral economics to crisis management decision-making

Published online by Cambridge University Press:  18 December 2017

John A. Parnell  and
William ‘Rick’ Crandall
John A. Parnell*
Affiliation:
School of Business, University of North Carolina at Pembroke, Pembroke, NC, USA
William ‘Rick’ Crandall
Affiliation:
School of Business, University of North Carolina at Pembroke, Pembroke, NC, USA
*
Corresponding author: john.parnell@uncp.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

Scholarly work in the field of crisis management has flourished in recent years with contributions from numerous disciplines, including strategic management, organizational behavior, public relations, risk management, and disaster management. However, the substantial and prospective applications from behavioral economics – from Herbert Simon to modern theorists – have yet to be systematically integrated into the literature. This paper presents a framework that categorizes applications from behavioral economics along three stages of the crisis management life cycle – crisis preparation, crisis action, and postcrisis. It provides insights for scholars and practitioners into the crisis decision-making process and outlines why ‘less-than-rational’ decision-making approaches often appear in crisis environments.

Keywords

behavioral economicscrisis managementdecision-makinguncertainty
Type
Research Article
Information
Journal of Management & Organization , Volume 26 , Issue 4 , July 2020 , pp. 585 - 600
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2017

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ariely, D. (2009). The curious paradox of ‘optimism bias’. Business Week, 48.Google Scholar
Barberis, N. C. (2013). Thirty years of prospect theory in economics: A review and assessment. Journal of Economic Perspectives, 27(1), 173–196.10.1257/jep.27.1.173CrossRefGoogle Scholar
Baucells, M., Weber, M., & Welfens, F. (2011). Reference-point formation and updating. Mathematics of Operations Research, 36(1), 506–519.Google Scholar
Becker, B. W., & Greenberg, M. G. (1978). Probability estimates by respondents: Does weighting improve accuracy? Journal of Marketing Research (JMR), 15(3), 482–486.10.1177/002224377801500318CrossRefGoogle Scholar
Caponecchia, C. (2010). It won’t happen to me: An investigation of optimism bias in occupational safety and health. Journal of Applied Social Psychology, 40(3), 601–617.10.1111/j.1559-1816.2010.00589.xCrossRefGoogle Scholar
Carey, S. (2017, April 27). United cites litany of failures. The Wall Street Journal, p. B1.Google Scholar
Carone, A., & Di Iorio, L. (2013). Crisis management: An extended reference framework for decision-makers. Journal of Business Continuity & Emergency Planning, 6(4), 347–359.Google ScholarPubMed
Christensen, T., Lægreid, P., & Rykkja, L. H. (2016). Organizing for crisis management: Building governance capacity and legitimacy. Public Administration Review, 76(6), 887–897. http://dx.doi.org/10.1111/puar.12558CrossRefGoogle Scholar
Chuang, S. C., Cheng, Y. H., Chang, C. J., & Chiang, Y. T. (2013). The impact of self-confidence on the compromise effect. International Journal of Psychology, 48(4), 660–675.10.1080/00207594.2012.666553CrossRefGoogle ScholarPubMed
Cirka, C. C., & Corrigall, E. A. (2010). Expanding possibilities through metaphor: Breaking biases to improve crisis management. Journal of Management Education, 34, 303–323.10.1177/1052562909336912CrossRefGoogle Scholar
Coleman, L. (2004). The frequency and costs of corporate crises. Journal of Contingencies & Crisis Management, 14, 3–11.10.1111/j.1468-5973.2006.00476.xCrossRefGoogle Scholar
Coombs, W. (2007). Ongoing Crisis Communication: Planning, Managing, and Responding (2nd ed.), Thousand Oaks, CA: Sage.Google Scholar
Coombs, W. T., & Holladay, S. J. (2006). Unpacking the halo effect: Reputation and crisis management. Journal of Communication Management, 10(2), 123–137.10.1108/13632540610664698CrossRefGoogle Scholar
Crandall, W. R., Parnell, J. A., & Spillan, J. E. (2014). Crisis Management: Leading in the New Strategy Landscape (2nd ed.), Thousand Oaks, CA: Sage Publications.Google Scholar
de Waard, E. J., Volberda, H. W., & Soeters, J. (2012). How to support sensing capabilities in highly volatile situations. Journal of Management & Organization, 18, 774–794.10.5172/jmo.2012.18.6.774CrossRefGoogle Scholar
Diacon, P. E., Donici, G.-A., & Maha, L.-G. (2013). Perspectives of economics – Behavioural economics. Theoretical & Applied Economics, 20(7), 27–32.Google Scholar
Dittmar, H., & Bond, R. (2010). I want it and I want it now’: Using a temporal discounting paradigm to examine predictors of consumer impulsivity. British Journal of Psychology, 101(4), 751–776.10.1348/000712609X484658CrossRefGoogle Scholar
Elsubbaugh, S., Fildes, R., & Rose, M. B. (2004). Preparation for crisis management: A proposed model and empirical evidence. Journal of Contingencies and Crisis Management, 12(3), 112–127.10.1111/j.0966-0879.2004.00441.xCrossRefGoogle Scholar
Evans, N., & Elphick, S. (2005). Models of crisis management: An evaluation of their value for strategic planning in the international travel industry. International Journal of Tourism Research, 7(3), 135–150.10.1002/jtr.527CrossRefGoogle Scholar
Foss, N. J., & Lindenberg, S. (2013). Microfoundations for strategy: A goal-framing perspective on the drivers of value creation. Academy of Management Perspectives, 27(2), 85–102.10.5465/amp.2012.0103CrossRefGoogle Scholar
Fowler, K. L., Kling, N. D., & Larson, M. D. (2007). Organizational preparedness for coping with a major crisis or disaster. Business & Society, 46(1), 88–103.10.1177/0007650306293390CrossRefGoogle Scholar
Fox, J. (2015). From “Economic Man” to behavioral economics: A short history of modern decision-making. Harvard Business Review, 93(5), 79–85.Google Scholar
Gerchick, M. (2013). Full upright and locked position: Not-so-comfortable truths about air travel today. New York/London: W.W. Norton and Company.Google Scholar
Gerrans, P. (2012). Retirement savings investment choices in response to the global financial crisis: Australian evidence. Australian Journal of Management, 37, 415–439.10.1177/0312896212450041CrossRefGoogle Scholar
Goh, K. H., & Bockstedt, J. C. (2013). The framing effects of multipart pricing on consumer purchasing behavior of customized information good bundles. Information Systems Research, 24(2), 334–351.10.1287/isre.1120.0428CrossRefGoogle Scholar
Haibing, G., Jinhong, X., Qi, W., & Wilbur, K. C. (2015). Should ad spending increase or decrease before a recall announcement? The marketing-finance interface in product-harm crisis management. Journal of Marketing, 79(5), 80–99.Google Scholar
Herbane, B. (2013). Exploring crisis management in UK small- and medium-sized enterprises. Journal of Contingencies & Crisis Management, 21(2), 82–95.10.1111/1468-5973.12006CrossRefGoogle Scholar
Hopper, N. (2017). United’s no good, very bad day – And what it means for all of us. Time, 189(15), 22.Google Scholar
Hossain, T., & List, J. A. (2012). The behavioralist visits the factory: Increasing productivity using simple framing manipulations. Management Science, 58(12), 2151–2167.10.1287/mnsc.1120.1544CrossRefGoogle Scholar
Hunter, M. L., Van Wassenhove, L. N., & Besiou, M. (2016). The new rules for crisis management. MIT Sloan Management Review, 57(4), 71–78.Google Scholar
Jaques, T. (2007). Issue management and crisis management: An integrated, non-linear, relational construct. Public Relations Review, 33(2), 147–157.10.1016/j.pubrev.2007.02.001CrossRefGoogle Scholar
Jaques, T. (2010). Reshaping crisis management. The challenge for organizational design. Organization Development Journal, 28(1), 9–17.Google Scholar
Kahneman, D. (2003). Maps of bounded rationality: Psychology for behavioral economics. American Economic Review, 93, 1449–1475.10.1257/000282803322655392CrossRefGoogle Scholar
Kahneman, D. (2011). Thinking fast and slow. New York: Farrar, Straus and Giroux.Google Scholar
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–292.10.2307/1914185CrossRefGoogle Scholar
Kantur, D., & Iseri-Say, A. (2012). Organizational resilience: A conceptual, integrative framework. Journal of Management & Organization, 18, 762.773.10.5172/jmo.2012.18.6.762CrossRefGoogle Scholar
Klophaus, R., & Pölt, S. (2006). Airline overbooking with dynamic spoilage costs. Journal of Revenue and Pricing Management, 6(1), 9–18.CrossRefGoogle Scholar
Lerbinger, O. (1997). The crisis manager: Facing risk and responsibility. Mahwah, NJ: Lawrence Erlbaum Associates.Google Scholar
Madrian, B. C., & Shea, D. F. (2001). The power of suggestion: Inertia in 401(k) participation and savings behavior. Quarterly Journal of Economics, 116(4), 1149–1187.CrossRefGoogle Scholar
Maiorescu, R. D. (2016). Crisis management at general motors and Toyota: An analysis of gender-specific communication and media coverage. Public Relations Review, 42(4), 556–563. http://dx.doi.org/10.1016/j.pubrev.2016.03.011CrossRefGoogle Scholar
McDonald, I. (2008). Behavioral economics. The Australian Economic Review, 41(2), 222–228.CrossRefGoogle Scholar
Mitroff, I. (2005). Why some companies emerge stronger and better from a crisis: 7 essential lessons for surviving a disaster (238pp). New York: AMACOM.Google Scholar
Morakabati, Y., Page, S. J., & Fletcher, J. (2017). Emergency management and tourism stakeholder responses to crises: A global survey. Journal of Travel Research, 56(3), 299–316. http://dx.doi.org/10.1177/0047287516641516CrossRefGoogle ScholarPubMed
Mourali, M., Böckenholt, U. L. F., & Laroche, M. (2007). Compromise and attraction effects under prevention and promotion motivations. Journal of Consumer Research, 34(2), 234–247.10.1086/519151CrossRefGoogle Scholar
Mukherjee, K. (2011). Thinking styles and risky decision-making: Further exploration of the affect-probability weighting link. Journal of Behavioral Decision-making, 24(5), 443–455. http://dx.doi.org/10.1002/bdm.700CrossRefGoogle Scholar
Paraschiv, C., & Chenavaz, R. (2011). Sellers’ and buyers’ reference point dynamics in the housing market. Housing Studies, 26(3), 329–352.CrossRefGoogle Scholar
Paraskevas, A. (2006). Crisis management or crisis response system? A complexity science approach to organizational crises. Management Decision, 44, 892–907.10.1108/00251740610680587CrossRefGoogle Scholar
Parnell, J. A., & Dent, E. L. (2009). Philosophy, ethics and capitalism: An interview with BB&T CEO John Allison. Academy of Management Learning & Education, 8, 587–596.Google Scholar
Parnell, J. A., Köseoglu, M. A., & Spillan, J. E. (2010). Crisis readiness in Turkey and the United States. Journal of Contingencies & Crisis Management, 18(2), 108–116.10.1111/j.1468-5973.2010.00603.xCrossRefGoogle Scholar
Pearson, C., & Clair, J. (1998). Reframing crisis management. Academy of Management Review, 23(1), 59–76.10.5465/amr.1998.192960CrossRefGoogle Scholar
Pearson, C., & Mitroff, I. (1993). From crisis prone to crisis prepared: A framework for crisis management. Academy of Management Executive, 71, 48–59.Google Scholar
Peters, E., & Stark, J. W. C. (2005). Behavioral economics: The art and science of making choices. New Orleans Health/Pension Spring Meeting, 31(2), 1–25.Google Scholar
Pheng, L., Ho, D., & Ann, Y. (1999). Crisis management: A survey of property development firms. Property Management, 17(3), 31–51.Google Scholar
Piotrowski, C. (2006). Hurricane Katrina and organization development: Implications of chaos theory. Organizational Development Journal, 24(3), 10–19.Google Scholar
Piotrowski, C., Watt, J. D., & Armstrong, T. (2010). The interdisciplinary nature of the field of crisis management: A call for research collaboration. Organization Development Journal, 28(3), 85–91.Google Scholar
Pixley, J. (2010). The use of risk in understanding financial decisions and institutional uncertainty. Journal of Socio-Economics, 39(2), 209–222.CrossRefGoogle Scholar
Racherla, P., & Clark, H. (2009). A framework for knowledge-based crisis management in the hospitality and tourism industry. Cornell Hospitality Quarterly, 50, 561–577.CrossRefGoogle Scholar
Ritov, I., & Baron, J. (1990). Reluctance to vaccinate: Omission bias and ambiguity. Journal of Behavioral Decision-making, 3, 263–277.CrossRefGoogle Scholar
Robert, B., & Lajtha, C. (2002). A new approach to crisis management. Journal of Contingencies and Crisis Management, 10(4), 181–191.CrossRefGoogle Scholar
Rothstein, M. (1985). OR and the airline overbooking problem. Operations Research, 33(2), 237–248.CrossRefGoogle Scholar
Roux-Dufort, C. (2007). Is crisis management (only) a management of exceptions? Journal of Contingencies and Crisis Management, 15(2), 105–114.10.1111/j.1468-5973.2007.00507.xCrossRefGoogle Scholar
Sawalha, I. H. S., Jraisat, L. F., & Al-Quduh, K. A. M. (2013). Crisis and disaster management in Jordanian hotels: Practices and cultural considerations. Disaster Prevention and Management, 22(3), 210–228.CrossRefGoogle Scholar
Schilirò, D. (2012). Bounded rationality and perfect rationality: Psychology into economics. Theoretical & Practical Research in Economic Fields, 3(2), 101–111.Google Scholar
Schwartz, B. (2004). The paradox of choice: How the culture of abundance robs us of satisfaction. New York, NY: Harper Perennial.Google Scholar
Shefrin, H. (2013). When CFOs think fast…They may get the company into a lot of trouble; here’s where they go astray—and how to avoid it. Wall Street Journal, p. R5.Google Scholar
Shefrin, H. (2015). The behavioral paradigm shift. Revista de Administração de Empresas, 55(1), 95–98.CrossRefGoogle Scholar
Siddappa, S., Rosenberger, J., & Chen, V. (2007). Optimizing airline overbooking using a hybrid gradient approach and statistical modeling. Journal of Revenue and Pricing Management, 7(2), 207–218.CrossRefGoogle Scholar
Simon, H. A. (1985). Human nature in politics: The dialogue of psychology and political science. The American Political Science Review, 79(2), 293–304.CrossRefGoogle Scholar
Simon, H. A. (1991). Bounded rationality and organizational learning. Organization Science, 2(1), 125–134.10.1287/orsc.2.1.125CrossRefGoogle Scholar
Smith, D., & Elliott, D. (2007). Exploring the barriers to learning from crisis: Organizational learning and crisis. Management Learning, 38(5), 519–538.CrossRefGoogle Scholar
Somers, S. (2009). Measuring resilience potential: An adaptive strategy for organizational crisis planning. Journal of Contingencies & Crisis Management, 17(1), 12–23.10.1111/j.1468-5973.2009.00558.xCrossRefGoogle Scholar
Stanovich, K. E., & West, R. F. (2000). Individual differences in reasoning: Implications for the rationality debate? Behavioral and Brain Sciences, 23, 645–665.CrossRefGoogle ScholarPubMed
Sunstein, C. R. (2013). The Storrs Lectures: Behavioral economics and paternalism. Yale Law Journal, 122(7), 1826–1899.Google Scholar
van Witteloostuijn, A. (1998). Bridging behavioral and economic theories of decline: Organizational inertia, strategic competition and chronic failure. Management Science, 44(4), 501–521.CrossRefGoogle Scholar
Weick, K. (1993). The collapse of sensemaking in organizations: The Mann Gulch Disaster. Administrative Science Quarterly, 38, 628–652.CrossRefGoogle Scholar
Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of Personality and Social Psychology, 39, 806–820.10.1037/0022-3514.39.5.806CrossRefGoogle Scholar
Whelan, R., & McHugh, L. A. (2009). Temporal discounting of hypothetical monetary rewards by adolescents, adults, and older adults. Psychological Record, 59(2), 247–258.CrossRefGoogle Scholar