Early work by Kahneman and Tversky (1979, 1987, as cited in Haunschild et al., 1994) and Tversky and Kahneman (1973, 1974, as cited by Hitt and Tyler, 1991) suggested that as the complexity and uncertainty of decisions increases, individuals develop and use heuristics to simplify decision-making. These ideas are built upon in the acquisition domain by Duhaime and Schwenk (1985), for example, who describe perceptual processes, heuristics, and other factors that overly simplify acquisition decisions. These authors also hypothesise that simplification has a negative impact on outcomes. Haunschild et al. (1994) provided another example of the substance of this stream. Drawing on Staw’s (1976, 1978, 1981, as cited in Haunschild et al., 1994; Puranam, Powell, & Singh, 2006) escalation of commitment theory, they identified situational factors, such as personal commitment and a public announcement of the intent to acquire, which resulted in an overcommitment to an acquisition candidate which, in turn, can lead to managerial error and failure. Hayward (1997) and Roll (1986, as cited in Hitt et al., 1991) related hubris to the premia paid for candidates.
The key assumptions underlying this stream are, first, that individual managers are subject to introducing biases into the decision-making process under different conditions and that such biases negatively affect outcomes. Second, and often implicitly, if the linkages and causal relationships between people, situational factors, and biases can be identified and understood, they can be managed and reduced (Pennings, 1985). Haunschild et al. (1994) for example, suggested that overcommitment can be avoided by assigning responsibilities for candidate evaluation and selection to different people in an organisation.
