Bounded rationality effect on firm’s choices on R&D investments: A model for decision-making effectiveness analysis

Keywords: Bounded rationality;, Decision-making process, R&D projects, R&D investments, Cognitive capacity, Effectiveness index

Abstract

How effective is the taken R&D investment decision, considering the effect of bounded rationality? Guided by this question, it is explored the decision-making process at the group level within the firm. A mathematical model for determining the effectiveness of decision-making based on the group’s experience is proposed. By considering subjective and objective factors, the Decision-making Effectiveness Index – Dei, model was created. To prove theoretical hypotheses and testing the model, a randomly generated dataset was built consisting of 4,000 individuals that were grouped representing 500 hypothetical firms. After performing the simulation, both hypotheses were confirmed, and the model was validated. The main theoretical findings evidenced that the project’s success will depend on decision-makers' cognitive capacity. As a contribution for practitioners, this research highlighted the importance of considering group experience in a self-analysis effectiveness index. Procedures are proposed for comparing the firm effectiveness index with competitors for improving firm decision-making performance.

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Author Biographies

Marcos Ferasso, Community University of Chapeco Region

M. Ferasso earned his Bachelor Diploma in Management from University of the West of Santa Catarina (Brazil) in 2002, his Specialization Diploma in Business Management from UNOESC (Brazil) in 2005, his Specialization Diploma in Local Development from International Labour Organization/United Nations (Italy) in 2006, earned his M.Sc. in Management from UFRGS (Brazil) in 2009, with an exchange period as visiting researcher at Euromed-Marseille Ecole de Management(France), and earned his Ph.D. in Management from Federal University of Parana (Brazil) in 2018, with an exchange period as visiting researcher at Forsyth Technical Community College (USA). He concluded his first Postdoctorate at Meridional Faculty – IMED (Brazil) and the second at KEDGE Business School – Marseilles (France). He is currently Assistant Professor at Unochapeco University (Brazil).

Eloisio Andrey Bergamaschi, SESI Innovation Institute

E. A. Bergamaschi earned his Bachelor Diploma in Business Management and Information Systems from Pontifical Catholic University of Rio Grande do Sul (Brazil) in 2002, his M.Sc. in Management from Federal University of Rio Grande do Sul (Brazil) in 2008, and his Specialization Diploma in Computer Science from Federal University of Rio Grande do Sul (Brazil) in 2010. Currently, he is Manager at SESI Innovation Institute (Brazil).

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Published
2020-02-23
How to Cite
Ferasso, M., & Bergamaschi, E. A. (2020). Bounded rationality effect on firm’s choices on R&D investments: A model for decision-making effectiveness analysis. Journal of Research in Emerging Markets, 2(1), 24-42. https://doi.org/10.30585/jrems.v2i1.449