Private Equity Psychology

Great executive judgment is arguably the most important factor for success in the deal-orientated world of private equity. However, overconfidence and other heuristic biases affect decision-making in complex ways that vary strongly with context. This research examines the role of overconfidence and heuristic biases in influencing executive judgments within the context of the private equity industry. An interdisciplinary approach is taken to the widely researched yet disparate topic of managerial decision-making, whilst paying specific attention to private equity. Knowledge from strategic management, psychology and organizational behaviour are evaluated to form a series of conjectures. Recommendations for good practice in private equity decision-making are proposed along with further research possibilities.