Cognitive limitations and biases in M&A related decision-making

Thumbnail Image

Files

URL

Journal Title

Journal ISSN

Volume Title

School of Business | Bachelor's thesis
Electronic archive copy is available locally at the Harald Herlin Learning Centre. The staff of Aalto University has access to the electronic bachelor's theses by logging into Aaltodoc with their personal Aalto user ID. Read more about the availability of the bachelor's theses.
Unless otherwise stated, all rights belong to the author. You may download, display and print this publication for Your own personal use. Commercial use is prohibited.

Authors

Date

2025

Department

Tieto- ja palvelujohtamisen laitos

Major/Subject

Mcode

Degree programme

Tieto- ja palvelujohtaminen

Language

en

Pages

29

Series

Abstract

This thesis examines how cognitive limitations and biases shape acquisition decision-making by reviewing literature from economics, management and psychology. Classical models assume that managers act as rational optimisers, yet empirical evidence shows that many acquisitions fail to deliver expected value. To explain this gap, the thesis draws on three perspectives: bounded rationality, cognitive bias research, and dual-process theory. Together, these perspectives show how limited information-processing, systematic judgment errors and the interaction of intuitive and analytical reasoning influence managerial behaviour in acquisitions. Using a process-based framework, the M&A lifecycle is divided into five phases: target identification, valuation, due diligence, deal closure and post-merger integration. The analysis demonstrates that biases emerge in predictable stages of this process and often reinforce one another. The results demonstrate that cognitive limitations and biases are central to acquisition decision-making and can be analysed both descriptively and analytically. Bounded rationality identifies the constraints that produce biases, cognitive bias research catalogues their systematic effects and dual-process theory explains how intuitive and analytical reasoning interact. Together, these frameworks provide a more realistic representation of acquisition behaviour than rational models alone. The thesis finds that biases cannot be eliminated completely, but their effects can be reduced with protection strategies specific to each decision stage, such as independent challenge reviews, structured valuation protocols and predefined exit strategies.

Description

Thesis advisor

Movarrei, Reza

Keywords

bounded rationality, cognitive bias, dual-process theory, mergers and acquisitions, decision-making

Other note

Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202510268568

Collections

[kand] Kauppakorkeakoulu / BIZ