Prospect theory: an analysis of corporate actions and priorities in pandemic crisis

Abstract

Purpose The purpose of this study is to examine and interpret the findings from different sources on the corporate decisions during COVID-19. Design/methodology/approach The COVID-19 is a new phenomenon; grounded theory research approach is adopted to develop propositions on prospect theory and strategic decisions. The paper examines and interprets the findings from different sources on the corporate decisions during COVID-19. Findings Conventionally, it is believed that innovation brings risks, and individuals preferred certainty over uncertainty, even if the gains under uncertainty were twice as high. But, the results of the study indicate a divergent trend. Under threat perceptions of risks, companies explore significant opportunities and possibilities for organizational growth. Practical implications The study provides a framework to analyze the strategic decisions of corporate enterprises. The decisions replicate value function as concave in a gain situation and convex in a loss realm in times of pandemic crises. Originality/value This paper uses “actions taken” by enterprises offering various solutions in the testing times. The study is multidisciplinary in nature; it analyses the transformation strategic decisions in the context of economic and social dimensions for surviving the pandemic crises. The study provides a foundation for future research, as inferences are based on select examples.

Guest editorial: Advancing theory on innovating in Asia from multiple perspectives

“…The cultural issues include the absence of commitment, complacency and difficulties adapting to technology changes. The fourth paper by Tapas and Pillai (2021) in this special issue is "Prospect theory: An analysis of corporate actions and priorities in pandemic crisis", which applied prospect theory to the cases for analysing the validity of the behavioural theory during the COVID-19 crisis. The study validated that companies find significant opportunities and possibilities under threat discernment of risks.…”

Impact of Individual Decision-Making Factors on Project Failure

“…Age and gender were among the demographic factors that impacted the anchoring heuristic, with women and older age groups tending to have a higher degree of reliance on anchors (Goyal, Gupta and Yadav, 2021). Prospect theory (PT) (Kahneman and Tversky, 1979) is one of the most significant models of decision-making under risk (Liu et al, 2020, Tapas andPillai, 2021). PT refers to the loss of aversion theory under which the investors exhibit different behaviors and tend to be risk-averse when it comes to gains but are risk-seekers to losses (Tapas and Pillai, 2021).…”

“…Prospect theory (PT) (Kahneman and Tversky, 1979) is one of the most significant models of decision-making under risk (Liu et al, 2020, Tapas andPillai, 2021). PT refers to the loss of aversion theory under which the investors exhibit different behaviors and tend to be risk-averse when it comes to gains but are risk-seekers to losses (Tapas and Pillai, 2021). In this theory, decision-making under risk is viewed as a choice between prospects or gambles (Kahneman and Tversky, 1979).…”

“…Tversky and Kahneman (1992) proposed the cumulative prospect theory (CPT), extending the expected utility model and the original prospect theory by applying the cumulative function separately to gains and losses. Although individuals may claim to be logical decision-makers, individuals are susceptible to cognitive biases and overlook rational choices (Tapas and Pillai, 2021). When presented with an option, an investor tends to choose the one shown in potential gains.…”

Estudando fatores mitigadores do efeito <em>framing</em>: uma pesquisa com universitários brasileiros

“…A teoria dos prospectos, proposta por Kahneman e Tversky (1979), trouxe em seu escopo uma nova perspectiva acerca do comportamento dos investidores. Segundos os estudiosos supracitados, os tomadores de decisão são vítimas de seus vieses cognitivos; o que derivou na descoberta de que estes agentes, em determinados contextos, podem não ser totalmente racionais, apontando então para o fato de que os indivíduos não tomavam as suas decisões baseadas em níveis absolutos de utilidade da mesma (Tapas, P. & Pillai, D., 2021).…”