Putting Rational Blinders Behind Us: Behavioural Understandings of Finance and Strategic Management

Both financial economics and neoclassical economic approaches to strategy attempt to understand the operation of competitive markets assuming market equilibrium and optimising agents. These assumptions imply no strategies can exist that consistently outperform the market. However, behavioural finance results clearly demonstrate this implication is wrong. For strategic management, a theory that implies no rules exist to outperform the market cannot explain why some firms consistently perform better than others. This paper argues that a behavioural perspective of strategic management offers a coherent framework and set of assumptions that better inform the problems strategic management scholars attack.