Hazards to effective due diligence

• Main Author: BENOLIEL, Michael
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Deal Making; Due Diligence; Decisions; Biases; Hazards; Negotiation; Organizational Behavior and Theory
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4762; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5761/viewcontent/Benoliel_HazardsEffectiveDueDiligence_EJBM3_2015.pdf
• Institution: Singapore Management University

It is not surprising that many business deals fail to realize their expected future value because some deal makers fail to perform effective due diligence. Successful deal makers, however, know that due diligence is one of the most important tasks in successful deal making. Thus, they avoid the psychological and contextual traps that cause poor due diligence. In this article, I describe the hazards – the psychological biases and contextual factors – that might affect the due diligence task. These hazards include information availability bias; confirmation bias; overconfidence bias; time pressure; self-interested agents; deal fever; narrow focus; and complexity. Following this review, I provide a number of suggestions to help deal makers and organizations overcome these hazards.