Applying behavioral economics to improving corporate governance

Abstract

This article explores the application of Behavioral Economics (BE) principles to the improvement of corporate governance, with a particular focus on the functioning of Boards of Directors in mid-sized, non-listed companies. Acknowledging empirical evidence that decision-making within these bodies is shaped by cognitive, emotional, and social biases —such as overconfidence, groupthink, or the affect heuristic— the paper proposes a behavioral framework aimed at mitigating these distortions through tools such as nudge theory, bias-detection checklists, deliberate dissent promotion, and strategic pre-mortem analysis. The analysis incorporates both structural (board composition and diversity) and cultural dimensions (deliberative climate, power dynamics, and emotions), and distinguishes specific nuances between family and non-family boards. The article argues that integrating BE into governance processes not only helps professionalize decision-making and reduce systematic errors with high economic costs, but also fosters a more reflective, critical, and adaptive culture. The proposed approach does not seek to replace classical rationality, but rather to complement it with a more realistic understanding of human behavior in complex corporate settings.