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This article aims to systematically review the literature published in recognized journals focused on cognitive heuristic-driven biases and their effect on investment management activities and market efficiency. It also includes some of the research work on the origins and foundations of behavioral finance, and how this has grown substantially to become an established and particular subject of study in its own right. The study also aims to provide future direction to the researchers working in this field.

For doing research synthesis, a systematic literature review (SLR) approach was applied considering research studies published within the time period, i.e. 1970–2021. This study attempted to accomplish a critical review of 176 studies out of 256 studies identified, which were published in reputable journals to synthesize the existing literature in the behavioral finance domain-related explicitly to cognitive heuristic-driven biases and their effect on investment management activities and market efficiency as well as on the origins and foundations of behavioral finance.

This review reveals that investors often use cognitive heuristics to reduce the risk of losses in uncertain situations, but that leads to errors in judgment; as a result, investors make irrational decisions, which may cause the market to overreact or underreact – in both situations, the market becomes inefficient. Overall, the literature demonstrates that there is currently no consensus on the usefulness of cognitive heuristics in the context of investment management activities and market efficiency. Therefore, a lack of consensus about this topic suggests that further studies may bring relevant contributions to the literature. Based on the gaps analysis, three major categories of gaps, namely theoretical and methodological gaps, and contextual gaps, are found, where research is needed.

The skillful understanding and knowledge of the cognitive heuristic-driven biases will help the investors, financial institutions and policymakers to overcome the adverse effect of these behavioral biases in the stock market. This article provides a detailed explanation of cognitive heuristic-driven biases and their influence on investment management activities and market efficiency, which could be very useful for finance practitioners, such as an investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making their financial management strategies.

Currently, no recent study exists, which reviews and evaluates the empirical research on cognitive heuristic-driven biases displayed by investors. The current study is original in discussing the role of cognitive heuristic-driven biases in investment management activities and market efficiency as well as the history and foundations of behavioral finance by means of research synthesis. This paper is useful to researchers, academicians, policymakers and those working in the area of behavioral finance in understanding the role that cognitive heuristic plays in investment management activities and market efficiency.

Behavioral strategy aspires to build theories that are behaviorally plausible. However, the diversity of human behaviors can make it challenging to know what behavioral assumptions to use when building theories about organizations and their strategies. Fortunately, organizational contexts are, to varying degrees, designed. This introduces a powerful set of levers – sorting, framing, and structuring – that reduce this diversity of behavioral possibilities to a tractable yet plausible few. Attention to the organizational contexts that shape individual and group behavior can, therefore, help behavioral strategists attain their objectives of building theories with sound behavioral foundations.

This paper presents a comprehensive review of academic research dedicated to the field of Behavioral Strategy. Based on a series of Bibliometric and network analyses, the paper identifies the prominent trend and growth patterns pertaining to the evolution of this important strategic management subfield; it documents which particular journals, articles and authors have most influenced its development, and it maps the intellectual structure and network of authors, publications and countries. Finally, the paper considers the substantive research themes emerging from the analyses reported, in terms of their implications for future work.

The authors undertook a series of Bibliometric and network analyses of 217 relevant articles, published between 1975 and 2020, in journals listed in the Scopus database, using R-studio and VOSviewer. Articles incorporated in the study were selected based on relevant key terms searched from the title, abstract and list of keywords associated with each publication.

The results demonstrate that behavioral strategy has enjoyed robust and sustained growth, with widespread impact across many areas of the heterogeneous business and management field as a whole. Three distinct periods are identified: an infancy stage (prior to 1999); a steady growth stage (1999–2010); and a take-off stage (2011 onwards). The top three journals in terms of content coverage, based on the number of relevant articles published in relation to behavioral strategy, are Strategic Management Journal, Advances in Strategic Management (AiSM) and the Journal of Management, while the top three most influential journals, in terms of citations pertaining to Behavioral Strategy, based on an analysis of citations in the Scopus database, are Strategic Management Journal, Academy of Management Perspectives and Journal of Management Studies. Gerard P. Hodgkinson and Thomas C. Powell are the most prolific authors. The emerging themes based on intellectual structures have been identified as Behavioral Strategy, Behavioral Theory of Firm; Strategic Leadership and Dynamic Capabilities; and Strategic Cognition and Decision Making.

The study contributes to knowledge advancement concerning Behavioral Strategy by opening new possibilities to discover important research areas.

The study is the first of its kind on Behavioral Strategy providing a comprehensive systematic literature review.

This paper makes a contribution to the discussion on micro-foundations of dynamic capabilities – actions and interactions in organizations that enable continuous organizational renewal. More specifically, we propose the idea that dynamic capabilities of an organization are a positive function of corresponding dynamic capabilities of individual and collective actors in the organization. Further, we develop the assumption that not only individual acts of managers but also those of individuals and teams without managerial responsibility relate to dynamic capabilities of the organization. Following a holistic view, we also take into consideration empowering working conditions as an enhancing factor of this function. To examine these roots of dynamic capabilities, we use a multi-level model of competence provided by Wilkens, Keller, and Schmette (2006) that operationalizes the concept of dynamic capabilities provided by Teece (2007) on a concisely behavioral base. We investigated our hypotheses with a standardized questionnaire in a case study of a German plant engineering company with 112 participants and found primary support for our assumptions. Our results show an impact of individual dynamic capabilities on dynamic capabilities of the organization that is mediated by team dynamic capabilities. Psychological and social–structural empowerment moderated this relationship. A case-specific interpretation and implications for future research and practice are discussed.

The purpose of this paper is to apply the cognitive research of Herbert Simon to business strategy decisions, to begin a discussion of the emerging field of Behavioral Strategy.

Research on cognition, memory and expertise are organized, with the aim of enlightening the process of business strategy development.

The authors select four insights from Simon's work to form an integrative framework of decision making and apply this to illuminate existing approaches to schools of strategy thought and practice.

This paper should lead to research on how to advance the process of solving strategic problems, in both practice and theory. The most important limitation is that much additional research lies ahead, as this is a foundational view.

This paper is the first to recognize the potential for application of Simon's cognitive research to the practice of strategic decisions.

The first purpose of this paper is to situate and conceptualise ambiguity in the operations management (OM) literature, as connected to supply chain decision-making (SCDM). The second purpose is to study the role of ambiguity-coping mechanisms in that context.

This research uses the behavioural decision theory (BDT) to better embed ambiguity in a generic SCDM framework. The framework explicates both behavioural and non-behavioural antecedents of ambiguity and enables us to also ground the “coping” mechanisms as individual and organisational level strategies. Properties of the framework are illustrated through two “ambiguous” events – the 2011 Thai flood and Covid-19 pandemic.

Three key findings are documented. First, ambiguity is shown to distinctively affect supply chain decisions and having correspondence with specific coping mechanisms. Second, the conceptual framework shows how individual coping mechanisms can undermine rational-based organisational coping mechanisms, leading to “sub-optimal” (poor) supply chain decisions. Third, this study highlights the positive role of visibility but surprisingly organisational “experiential” learning is imperfect, due to the focus on “similar” past experience and what is known.

The paper is novel in two ways. First, it introduces ambiguity – an often neglected concept in operations management – into the supply chain lexicon, by developing a typology of ambiguity. Second, ambiguity-coping mechanisms are also introduced as both individual and organisational strategies. This enables the study to draw distinctive theoretical and practical implications.

This paper aims to apply internalization theory in the context of economic efficiency-driven institutions interacting with societal institutions that pursue broader goals.

The analysis builds upon Buckley and Boddewyn’s (2015, this issue) recent work on the perceived need for multinational enterprises (MNEs) to supply public goods outside of their sphere of technical competences. This paper proposes a more restrictive approach: external markets will only be internalized if, on balance, the efficiency benefits of internalization outweigh its costs at the firm level, in line with orthodox internalization theory.

MNEs replacing the activities of failing (or even absent) public sector institutions is a business phenomenon commonly observed in less developed economies. However, positive distributional effects and societal externalities without the required efficiency benefits at the firm level are insufficient for MNEs’ supply to occur.

Managerial decisions in the internalization sphere will be guided by the transactional characteristics of the MNEs’ firm-specific advantages (FSAs) and the requisite complementary resources held by host country economic actors. Internalization theory thinking suggests applying various, specific principles to assess in a comparative institutional fashion whether “diversification” into supplying public goods will serve the MNEs’ efficiency goals, namely, the “cost of entry” test, the “better-off” test and the “value capture” test.

Internalization theory provides a solid, efficiency-driven rationale to guide MNE choices on which activities the firm will conduct internally. The nature of the MNEs FSAs and the most efficient, feasible option to bundle firm-level resources and locally held resources in host environments are critical to these choices.

This commentary elaborates further upon the work by Martin and Gomez-Mejia (this issue) about the two-way relationship between financial wealth and socioemotional wealth (SEW). This paper aims to provide a better understanding of the micro-foundations of the SEW approach, and how the research community could further develop it based on the SEW behavioral roots.

The paper explores recent refinements of the SEW approach, its underpinnings, limitations and potential. It undertook a review of the behavioral foundations of SEW, exploring the implications of those foundations in the interplay between SEW and financial wealth. It also examines aspects of SEW that are still under researched using behavioral lens, as well as some ideas about how the field could move forward.

The authors note that the SEW approach has become so widespread that some are wrongly using it just as an “umbrella term” to account for the non-economic utilities of family owners, forgoing its theoretical roots and implications. Drawing on its theoretical foundations, the authors theorize on the limitations of the SEW approach when wrongly used, and on its potential when properly applied. The main conclusion is that if the SEW approach aims at becoming a dominant paradigm in the family business field, then going back to its behavioral foundations is needed.

The main conclusion is that if the SEW approach aims at becoming a dominant paradigm in the family business field, then going back to its behavioral foundations is needed.

Overall, this work calls for the use of a “back-to-the-basics” strategy, in which the field clearly understands the original purpose of the SEW perspective, as well as its limitations and potential to become a dominant paradigm in the family business field.