Dissertation blog #3

‘Dissertation-Blog’ #3

Why do so many organizations fail to respond timely when they are confronted by an all-encompassing crisis? Especially when your survival is at stake, and if the crisis at hand is so evident, why wouldn’t you respond immediately?

For this dissertation project, I examined U.S. commercial banks’ ability to shift their focus of attention when the U.S. was hit by the economic crisis in 2008. Crises of such magnitude can be so devastating that failing to respond, or simply failing to respond timely, can be the difference between bankruptcy and survival. One would expect that because the 2008 crisis began with the bankruptcy of one of the largest banks in the U.S., (nearly all) banks would be inclined to shift their attention towards making some kind of strategic change. But what is so baffling, is that many failed to act timely, causing dozens of bankruptcies in the months following.

I argue and empirically find that ‘mental schemas’ are an important factor that explain these differences in the banks’ ability to shift their focus. Mental schemas are individual’s beliefs about what information is important to consider and can be helpful for decision-makers to distinguish between valuable and invaluable information.

This relationship between being able to respond to crises and mental schemas should not be too surprising after having been through the COVID pandemic. The last few years it became time and again clear that there were many differences across organizations (and governments) in how timely they were able to respond. It begs the question what mental schemas were beneficial and which ones detrimental in adapting to this ‘new reality’. This is just one of many fascinating parallels between the pandemic and the 2008 crisis. An important takeaway from my study is that how humans deal with crises is not always a matter of ‘did we learn anything from the last crises’, but also that (occasional) failure to respond is a matter of human nature, and therefore can be explained by our psychological biases and heuristics.

If you have questions or would like to know more about my work, feel free to send a PM!