Cognitive Individual Distortions and Emotional Factors: An Introduction to a Cognitive Approach to Governance of the Firm

The goal of this paper is the introduction of a cognitive approach to governance of the firm. There are a lot of relationships that tie the cognitive science to management and are founded on the role of the individual in the process of business management. Frequently, managerial decisions are taken using regular way of happening that are not fully rational but that are the result of cognitive distortions or emotional factors (positive or negative) which may push manager to make systematic errors. Starting from the cognitive distortion derived from the behavioral finance this paper describes some emotional factors, derived from the study of psychology literature, that can influence an individual during its decision making process. In this sense, we have identified the most common bias that can shove individuals, and therefore the manager, to take decisions influenced by cognitive distortions or emotional factors. At the end, after the introduction of a role of cognitive distortions in governance of the firm, we introduced a cognitive approach, with the objective of increasing the degree of knowledge of the effectiveness of its actions.