Decision Bias in Merger & Acquisition

Decision bias in mergers & acquisitions plays a great role even without us knowing it. As we will read later in this essay, there are several biases that could take place in business decision-making. Moreover, we have discussed the topic of Decision bias in business decisions in detail on our website. We would suggest that students go through it to grasp the concept better.

Nevertheless, in this sample essay, we will be discussing the topic of Decision bias in mergers & acquisition. Adding to that, we must look at different aspects of this topic to make a clear picture of the concept. Moreover, we shall be discussing the following things: How does bias affect business decisions, which decision bias are involved in merger and acquisition.

However, we shall first take a brief look at the meaning of merger and acquisition so that we are all on the same page.

What do merger and acquisition mean?

A merger means two businesses or companies coming together to form a single entity. On the other hand, the acquisition is more of the aggressive takeover of an organization by another organization. Moreover, merger takes place with a mutual agreement whereas acquisition may or may not be agreed upon.

How does bias affect business decisions?

This question is also discussed in another essay on our website namely, decision bias in business. Regardless, we shall discuss the same in this section of the essay with respect to merger & acquisition.

Moving on, the Decision bias in merger & acquisition can affect the results greatly. Biases are known to impair decision-making ability. Moreover, biases greatly affect one’s ability to make effective and efficient decisions. As a result, decisions taken under influence of biases may cause the organization loss of business and time.

In the case of merger & acquisition, a large sum of capital is involved. Even putting financial terms aside, the decision of merger acquisition can decide the future of the organization. As the acquisition of a business running in loss is not recommended under normal circumstances. Furthermore, a merger with an organization pursuing a different goal and having a different concept or ideology may also not prove healthy for a business.

Regardless, we shall look into the decision bias involved in merger & acquisition, in the next section of the paragraph.

Which decision biases are involved in mergers and acquisitions?

In this section of the sample essay we discuss the different decision biases that could be involved in merger and acquisition. Above we discussed how decision biases can affect mergers and acquisitions. Adding to that, here we shall look at different decision and cognitive biases that affect business decision in merger & acquisition in their own respective different way.

Without further adieu, the decision bias involved in merger and acquisition are as mentioned below:

Anchoring bias

Anchoring bias or also known as focalism, it occurs when a decision-maker rely too much on the initial information received in the decision making process.

In mergers and acquisitions, a firm being acquired places a bid and it results in anchoring value being created. Moreover, as deal progresses the anchoring value can influence seller in to reconsidering their worth regardless of actual value.

Overconfidence bias

It is a known fact that excess of anything is not good. The same goes for confidence, while confidence is a great quality to hold but the excess of it can result in biased decisions. Moreover, overconfidence can result in a failed merger which may cause a loss to shareholders’ value.

However, this overconfidence bias can be avoided. To avoid it one may examine and analysis the comparable deals in specific area, which is called the class forecasting.

pro-innovation bias

This bias is widely seen in the tech sector as a steady stream of “life-changing” services are seen which fail to prove real-life value. In simple words, we can say that businesses focus more on possibilities than what is. As a result; pro-innovation bias can often lead a business owner to ignore the limitations of their product.

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We especially recommend visiting our sample essay “implication of bias in business decision makes making” as it is closely related to this essay. Moreover, students may find it helpful as an example.