Behavioral strategy

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Behavioral strategy refers to the application of insights from psychology and behavioral economics to the research and practice of strategic management. In one definition of the field, "Behavioral strategy merges cognitive and social psychology with strategic management theory and practice. Behavioral strategy aims to bring realistic assumptions about human cognition, emotions, and social behavior to the strategic management of organizations and, thereby, to enrich strategy theory, empirical research, and real-world practice" ^[1] (Powell, Lovallo & Fox, 2011: 1371).

More specifically, behavioral strategy is as an approach to core issues in strategic management (e.g., CEO and top management team behaviors, entry decisions, competitive interaction, firm heterogeneity) with the following characteristics:

1)   It is microfoundational ^[2] (Felin, Foss, & Ployhardt, 2015) in the sense that a psychology-based understanding of the actions and interactions of individuals is used to explain strategy phenomena, often on a higher level of analysis;

2)   all fields of psychology, as well as relevant parts of behavioral economics and sociology, are seen as potentially applicable to, in principle, any strategic management phenomenon;

3)   assumptions about behaviors and interactions are to be based in evidence (e.g., brought about by means of experiments) rather than the extent to which these allow for mathematical tractability, are "elegant" or similar.

In terms of methods, behavioral strategy follows strategy research in general by being pluralist, such that qualitative research, lab and field experiments, and agent based modelling, in addition to conventional quantitative and formal methods are all acceptable. However, because of its heavy psychology-emphasis behavioral strategy research may be more disposed towards experiments than most other streams of strategy research.