The main objective of this chapter is for students to demonstrate that they can identify the manner in which biases and framing adversely impact the behavior of managers when they make decisions about mergers and acquisitions (M&A).

After completing this chapter students will be able to:

1. Explain why excessive optimism and overconfidence lead the managers of acquiring firms to overpay, thereby experiencing the winner’s curse.
2. Use the press coverage measure and longholder measure to identify executives who are prone to engage in acquisitions.
3. Explain why the managers of target firms who are excessively optimistic, overconfident, and trust market prices can destroy value for their shareholders.
4. Identify the manner in which being in the domain of losses affects the decisions of executives and board members in respect to acquisition activity.