Business games and experimental economics: a study of organizational rationality in decision making

Abstract

Through the empirical analysis of behavior in business games, this paper contributes to the discussion of the classical theories on decision making, especially the studies of Simon. Primary data from sequential experiments were collected from business games that operated as laboratory experiments. According to the theorists of Experimental Economics and Behavioral Finance (Barberis & Thaler, 2003; Breinholt, Chesteen, & Cooper, 1992; Shiller, 2000; Simon, 1957, 1976), there was evidence that the choices of some individuals were rational, although in a limited way, producing results in disagreement with the expected utility theory. Their judgment prevented their organizations from maximizing the results because of some cognitive factors (Simon as cited in Bazerman, 2004, p. 6) such as simplification, lack of criteria, time restriction, cost restriction, perception and the ability to retain information in the memory. The subjectively rational decisions (rational a priori), which seemed to align means and ends, were shown to be inefficient (a posteriori) reducing the organizational performance indicator (internal rate of return) and lowering incentives for the managers (performance evaluation). The evidence shown here, based on objective data and observations, makes it possible to study problems in the field of Experimental Economics through business games.

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