Do managers behave the way theory suggests? A choice-theoretic examination of foreign direct investment location decision-making

Many empirical examinations of foreign direct investment location choice have relied on the use of secondary data and surveys on the choices made by firms about the form and location of overseas investment. These studies have two inherent and related problems. First, they rely solely on the location choices made by different firms, and assume that the domains of possible options considered were the same. Second, there is an assumption about the rules used by firms to make these decisions, yet the decisions are made by boundedly rational managers. After reviewing the literature, this study examines managers choices about foreign investment location through the use of structured experimentation. The results show that in creating sets of investments to consider, managers appear to follow fairly rational rules. However, the choice of actual investments appears less aligned to traditional models.