Institutional Influences on Decision Making: The Case of Bank Lending to Small Businesses in the U.S. and Vietnam

Abstract:This research explores the question of how institutional factors influence busi- ness decision making. We conducted in-depth interviews with twenty-six bankers in Vietnam and the U.S. Our results suggest that the development of market institutions has a strong influence on managers’ frequency use of rational versus subjective decision making approaches. In developed countries, the presence of a large data base and a reliable legal system facilitates bankers’ choice of rational decision making. In the absence of effective market institutions, bankers have no choice but to rely extensively on personal heuristics and biases to make loan decisions. In this situation, heuristics and biases were used intentionally and consciously in decision making process. Two strategies to minimize bias errors – controlling and learning strategies – were used extensively by Vietnamese bankers.