Generation mechanism of behavioral risk for organizational decision-makers in financial institutions: organizational and human errors

This study investigates the mechanism behind the generation of behavioral risk among decision-makers in financial institutions. We start by examining the general mechanism of organizational decision-making behavior, then analyse organizational errors and human errors in the decision-making process, and subsequently define the connotations and types of organizational decision-makers’ behavioral risk. The study also identifies the necessary conditions for the emergence of decision-making behavioral risk. We construct a model to analyse the behavioral risk of decision-makers in financial institutions. We also develop motivation and utility functions for organizational decision-makers’ behavior, examine the relationship between factors in the utility function, and explore how organizational decision-makers adjust their behavior in various situations to maximize utility. The paper also analyses a case study involving the China Everbright Group (CEG). The study revealed the following: The conditions for the occurrence of organizational decision-makers’ behavioral risk in financial institutions mainly stem from the conflict between organizational interests and decision-makers’ interests, the failure of organizational contextual constraints, and the lack of organizational decision-making auditing and feedback mechanisms. Organizational decision-makers tend to exhibit inappropriate decision-making behaviors when they over-estimate their own abilities in comparison to the benefits they expect. Financial institutions should avoid organizational errors to reduce the likelihood of behavioral risk by increasing the cost of organizational decision-makers’ behavior. Our study proposes measures to mitigate the risk of inappropriate behavior by financial institutions through scientific decision-making.

Lijun Liang, Tongxin Dai, Mengwan Zhang