Behavioural Economics: Application to Quotidian Construction Decisions
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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 whether to pave a road, given temperature predictions, is an example of such a decision. When the impacts are aggregated, they can represent a non-negligible amount relative to project budgets. Understanding project leaders’ behaviour when they make such decisions under risk may create opportunities to avoid future losses that result from suboptimal choices. As these decisions occur frequently in 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 certain behavioural tendencies can influence the choices of decision-makers. This experiment focuses on behavioural tendencies such as the certainty effect and loss aversion. It demonstrates how project leaders are sensitive to these behavioural tendencies by evoking reactions of risk aversion or risk chasing in the experiment’s participants by presenting them with situations involving risk. These observations lead to the question of how to detect such decision-making problems and how to correct them so as to avoid non-negligible losses of money for construction projects.