Darryl Laws

 Part I. Modeling greed and fear. There are two cognitive behaviors playing a part in the decision at one-shot prisoner’s dilemma game on the protagonist (any one of the two players) mind:

(1) If player 2 cooperates and player 1 does not cooperate the gain received is (G− H), symbolizing GREED.

(2) If player 2 does not cooperate and player 1 cooperates the loss is (S−L) which symbolizes FEAR.

Similar models with different pay offs can be utilized to understand the variations of 

GREED by changing the “L” (loss) and “G” (gain).

Part 2. Modeling overconfidence. The experiment can be conducted on a new set of players to reduce any bias from the previous game. The underlying logic is that if a sense of comparative self-esteem is established among the new players, they will become more confident and show an overconfident cognitive behavior. To start I would note the payoff response to Player 1 at the end of game displayed in Table 1 followed by administering a short aptitude test of both the new players and advise them of the results in game 1. ( This test could represent that players with more aptitude who will be more favorable to gain more in the game. This tact can be used to instill a sense of superiority in the mind of one of the players with a greater aptitude score. Then game 1 would be played second time after the result declaration. One can speculate that the third cognitive behavior of overconfidence will come into play and the change in the frequency of decisions will be a measure indicating the bias. 

Conclusion. My intended purpose of this comprehensive literature review paper was to contrast literature written focusing upon rationality, bounded rationality, and irrational human behaviors that occur when principal parties such as CEOs that make Merger and acquisition transaction decisions with significant economic value and outcomes. The prevailing majority of the literature depicts that behavioral biases, irrational and rational, are also  fundamental drivers of merger and acquisition decisions apart from the prevailing economic environment’s forces and financial analysis favoring acquisitions. Apart from being able to identify and capture opportunities to respond to dynamic economic changes by acquisitions, firms must also be able to defer or abandon merger and acquisition transactions to avoid potential losses from adverse market conditions and organizational misfits. Strategy, perception of the risk involved and mispricing in the bidding market makes the merger and acquisition game increasingly complicated and sophisticated. Resolving biases has been underexplored in the extant studies of firm valuation and merger and acquisition strategy. This research demonstrates that more rational and dynamic strategies can be formed by applying extensions-based game theory for  incorporating bias analysis into merger and acquisition decision-making. This idea can assist executives to discipline their strategies and improve their chances of success in consolidation trends by increasing their bidding value quality devoid of any inherent biases. When applied properly,  game theory perspective can encourage rational decisions, justify takeover premiums for certain acquisitions and bid for target companies successfully.