What is ‘Behavioral theory’?

Behavioral Theory, as applied to business, explores the
psychological bases of management, leadership and decision-making.  It is applied to all
aspects of a business, from studies of the psychology of dealing with employees, through
specific areas of research such as behavioral
finances.

Behavioral Theory applies psychology to the study
of human judgment and biases in decision-making under conditions of risk and
uncertainty.  It seeks to determine “How we know and why we
act.”

The underlying assumption of business behavioral
theory is that there is a psychology of running a business, and a measurable model of
psychological motivational leadership.

One of the earlier
discoveries in the field of behavioral theory that is still applied today in the field
of motivational leadership is the Hawthorne Effect.  The effect is a measurable
improvement in output when the employer shows concern for employees.  There is a value
and benefit for the employer to acknowledge and provide for the psychological needs of
the workers.

An important aspect of behavioral theory is
the recognition that definable and learnable management behaviors exist.  To determine
effective behaviors one does not seek to define character or traits of good leaders. 
Instead one observes and applies what these leaders actually do.  Such determinations
represent the most fundamental application of behavioral theory to business
practice.