The main objective of this chapter is for students to demonstrate that they can identify the manner in which biases and framing adversely impact managers’ forecasts of project cash flows and their decisions about project adoption and termination.

After completing this chapter students will be able to:

1. Explain why managers who avoid discounted cash flow analysis are prone to select low-value projects over high-value projects.
2. Explain why overconfidence and excessive optimism lead managers to adopt negative net-present-value projects.
3. Explain why the combination of aversion to a sure loss, regret, and confirmation bias leads managers to continue failing projects when they should terminate those projects.
4. Distinguish between the remedies appropriate to agency conflicts and the remedies appropriate to behavioral biases.