Decision Making

Decision making, in its broadest sense, is a vast area of research that spans many disciplines, including psychology, economics, political science, and management. Researchers examine decision making at various levels of analysis (individuals, groups, organizations, and nations). They study decisions that range from the trivial (e.g., choices among gambles paying small amounts of money) to the very important (e.g., decisions risking nuclear war). Some scholars attempt to describe or explain actual decisions while others emphasize how individuals should make decisions. Decisions may result in a variety of outcomes that occur over a variety of time spans. The decision maker(s) may make similar types of decisions either repeatedly (e.g., a banker assessing loan applications) or once in a lifetime (e.g., a merger). This article focuses on strategic decision making in an organizational context. Strategic decisions are decisions that critically influence the future of an organization. A description is given of three fundamental theoretical perspectives—the behavioral theory of the firm, behavioral decision theory, and agency theory—that researchers typically use to study strategic decision making in organizations. Discussion is provided of two additional perspectives on decision making, namely, top management teams and cognition. These latter two approaches, while not unified by a central theory, are, nevertheless, widely used for examining and predicting strategic decisions. Strategic decisions usually involve risk. This article therefore examines the treatment of risk by the various studies in this area. It concludes with a look at some Future Directions for Strategic Decision Making research.