Behavioral Theory of the Firm


Behavioral Theory of the Firm

A theory of how a firm or company makes decisions. The behavioral theory states that a company's decision makers may not make the best decisions all the time because of lack of information, how a question is framed or their own prejudices and fears. Because more than one person is usually involved in a company's decision-making process, firms often implement policies to reduce the incentive for the personal perceptions of multiple persons to result in inefficient decisions. See also: Theory of the Firm.