Prospect Theory, Cognitive Biases, and Public Administration.

How public managers make decisions under different structural arrangements, incentives, and types of information is an often studied topic in the field of Public Management. However, despite recent advances in fields such as behavioral psychology, many public management scholars still rely on the traditional assumptions of the rational man model to formulate their theories about the decision-making processes of public managers. The purpose of this paper is to introduce Prospect Theory and the corresponding cognitive biases to the field of Public Management and examine the possible implications of this theory for public managers. Furthermore, Herbert Simon did provide public management scholars with a cohesive theory about decision-making within organizations in the form of "bounded rationality," which has been a vast improvement over the traditional rational man model. I postulate, however, that while Simon's theory was indeed a vast improvement over the rational man model, it also remains incomplete with its treatment of decision-making within organizations, particularly when these decisions have components of risk or uncertainty. Prospect Theory provides a more nuanced framework for when decisions have risk or uncertainty components. Prospect Theory and the resulting cognitive biases thus provide a framework by which public managers can recognize the errors in their judgment and attempt to improve the decisions they make. Finally, it is important that public management scholars give serious treatment to the decision-making processes of public managers. The decisions made by public managers have a direct impact on both organizational effectiveness and policy outcomes. [ABSTRACT FROM AUTHOR]