Why Smart Financial Experts Make Bad Decisions

New article by Philipp Richter and Peter Schäfer in Strategic Finance (IMA)

Financial experts are considered rational decision-makers. They calculate, they analyze, they assess. And yet they regularly get it wrong: in performance evaluations, in forecasts, and in investment decisions. Why?

The answer is provided in our new article, “Managing Cognitive Bias in Finance: A Practical Framework for Better Decisions,” published in Strategic Finance, the practitioner magazine of the Institute of Management Accountants (IMA). Cognitive biases can trip up even experienced executives as soon as judgments involve subjective elements. Anchoring effects skew forecasts, the halo effect colors performance evaluations, and confirmation bias turns analyses into self-affirmation. The tricky part is that expertise doesn’t protect against this. It breeds self-confidence, and self-confidence blinds people to their own cognitive errors.

The article shows how financial organizations are taking countermeasures. A practice-oriented framework helps executives recognize biases in their decision-making processes and systematically mitigate them: through structured decision-making processes, deliberately integrated counterarguments, and decision-making routines that combine intuition and control.

The article continues the Chair’s long-standing collaboration with the IMA and translates insights from behavior-oriented controlling research into concrete recommendations for practice.

Read the article: Managing Cognitive Bias in Finance