Application of prospect theory to management decisions under risk on construction projects Fiolet, Jean-Charles; Haas, Carl T.
Working on a construction project requires making important decisions quickly and frequently. Most of these decisions are made under risk in that the outcomes are not known, but their probabilities and impacts can be estimated, however imprecisely. Deciding to pave, given temperature predictions, is an example of such a decision. When the impacts are aggregated, they can represent a non-negligible amount compared to project budgets. Understanding project leaders’ behaviour when they make such decisions under risks may create opportunities to avoid future losses that result from suboptimal choices. As those decisions are numerous on a construction project, it might be difficult for the project leaders to always make the best choice. By using a questionnaire referring to potential construction project situations, this study shows how some behavioural tendencies can influence the choices of construction leaders. This paper mainly focuses on one aspect of the study, which is the impact of the certainty effect on projects leaders’ decision making. It demonstrates how project leaders are sensitive to the behavioural tendency associated with the certainty effect. This observation leads to the question of how to detect those problems and, how to correct them so as to avoid non-negligible loss of money for construction projects
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Attribution-NonCommercial-NoDerivs 2.5 Canada