Darryl Laws

 20 / 20 Hindsight bias. 20 / 20 Hindsight bias, or alternatively they knew it-all-along effect and creeping determinism, is the inclination to see events that have already occurred as being more predictable than they were before they took place. It is a multifaceted phenomenon that can affect different stages of designs, processes, contexts, and situations. Hindsight bias may cause memory distortion, where the recollection and reconstruction of content can lead to false theoretical outcomes. It has been suggested that the effect can cause extreme methodological problems while trying to analyze, understand, and interpret results in M&A activities. A basic example of the hindsight bias is when a CEO believes that after viewing the outcome of a potentially unattractive merger that they knew it all along.

Risk aversion. Aversion to losses is a central feature of prospect theory. Prospect theory is based on experimental evidence, of how people evaluate risk, Kateeinan and Tverskyj (1979). Decisions are determined by gains and losses measured relative to a reference point. Loss aversion, meaning that people are more sensitive to the possibility of losses than to gains of the same magnitude may lead executives to behave in a way that is sub-optimal from the shareholder perspective. Confronted with acquisition decisions in a consolidating industry, executives may exhibit aversion to a certain loss and narrow framing. In summary, aversion to certain losses and too-narrow framing may result in an overly static acquisition strategy that will result in sub-optimal growth in shareholder wealth.

Male Testosterone. In a widely cited paper, Burnham (2007) describes how the outcome of the ultimatum M&A game is related to levels of the steroidal hormone, testosterone in CEOs, which in humans and other animals has been associated with male dominance seeking in a competitive situation. This behavioral challenge, often irrationally, impedes cooperative behavior in the M&A game. This often leads to the respective CEO adapting the dominant strategy in the transaction’s negotiations.

Mixed Methods Research Design approach. I intend to utilize a convergent mixed methods research design (Creswell, 2018, pg. 218-219) that will combine my intended research design of a quantitative methods approach with a qualitative method approach using a weighted survey questionnaire selectively distributed (purposeful sampling) to industry practitioners in conjunction with field research interviews incorporating grounded theory methods as a part of the mixed methods design for the purposes of constructing the research for my dissertation. My aim which is to extract data from private equity merger and acquisitions buyout industry professionals; M&A investment bankers, M&A lawyers and private equity buyout fund M&A practitioners; and to discuss and analyze  the likely causes and effects of irrational human behaviors’ impact upon the decision-making processes in mergers and acquisitions transactions within the contextual framework of incomplete information strategic dominance game and payoff combined with a brief discussion of rationality and bounded rationality decision-making (normative decision theory) while exploring the causes that precipitate irrational behavior. Known as zero sum games or non-cooperative game, a game in which the players’ interest are in conflict and in which there is a payoff of a zero sum to one player (Vincent Crawford, 2001).