Looking Inside

This article explores ways that behavioral decision theory can predict and explain patterns of decisions that managers make in their efforts to maximize the economic value and scarcity potential of a firm’s portfolio of resources. The authors argue that psychology can offer a deeper and more nuanced look “inside” resource-based theory (RBT) as an efficiency-oriented, resource-focused analytical tool for discerning firm performance differences. The authors focus their inquiry on the resource acquisition, accumulation, and divestment processes that determine the components of a firm’s resource portfolio, developing a two-dimension framework to facilitate and extend the implementation of a decision-based approach to RBT. The first dimension describes three key psychological contexts of decisions, distinguishing among (a) perceptions of a firm’s existing resources, (b) the experience or competence of the decision makers, and (c) the framing of how alternatives are presented to decision makers. The second dimension captures the psychologically meaningful distinction between single choices made in isolation and simultaneous choices. Drawing on experimental and field research, the authors develop six testable propositions and explore potential for future theoretical and empirical contributions. The framework can help scholars specify the psychological foundations of a firm’s resource portfolio’s economic value and scarcity potential while helping managers delineate relevant considerations they must adopt to enhance a firm’s profitability.