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Data Envelopment Analysis: From Normative to Descriptive Performance Evaluation

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Nadia Vazquez Novoa

The question of modern performance evaluation has been extensively discussed in the literature, leading to a call for models including non-optimizing behaviors of decision makers and non-financial performance criteria. A promising management instrument is data envelopment analysis (DEA), which enables the aggregation of financial and non-financial indicators into a single measure. This work contributes to a better understanding of DEA from two perspectives: (i) it offers a normative solution to the zero-value weight problem and (ii) it provides the first experimental results on behavioral DEA based on an original taxonomy of cognitive biases related to performance evaluation. Behavioral DEA is a completely new research area which yields plenty of research opportunities.

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3. Managerial decision making

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3.   Managerial decision making

The present chapter offers an introduction to the decision making field, both from a normative and a descriptive perspective. Subchapter 3.1 presents the historical evolution of the field and summarizes the main areas of research in decision making, providing a structure for the rest of the chapter. Subchapter 3.2 reviews the main findings for choice tasks, Subchapter 3.3 deals with judgment and Subchapter 3.4 concentrates on probabilistic judgment. Finally, Subchapter 3.5 briefly presents some of the main criticisms to descriptive research on decision making.

3.1   A brief history of research on managerial decision making

Managerial decision making has been characterized by Simon (1977) as a complex process that comprises a total of four phases: intelligence, design, choice, and review. Intelligence corresponds to the scanning phase that aims at identifying environmental conditions, i.e. opportunities and threats, which need a managerial reply. Design implies finding different possible courses of action for the identified problem and choice refers to selecting the best alternative. The last phase concentrates on the assessment of past choices.84 This definition of managerial decision making stresses that not only the choice moment is relevant, but also the preparation and the evaluation of the choice. Nevertheless, it omits managerial judgment.85

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