Cognitive Antecedents of Family Business Bias in Investment Decisions

Lude and Prügl explored “family business bias,” a cognitive tendency where the family nature of a firm can often reduce investors’ perceived risk in investments. As a result, investors would display lower risk-avoidance in the gain domain and reinforced risk-seeking in the loss domain. We expanded the authors’ work by introducing four cognitive factors (anchoring, representativeness, stereotype heuristic, and information availability) that can explain the underlying mechanisms behind the prevalence of “family business bias” and other cognitive misperceptions surrounding family businesses when it comes to investment decisions