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«Tim Rosengart July 17, 2009 This is a Bucerius/WHU MLB thesis 12,832 words (excluding footnotes) Supervisor 1: Professor Dr. Bernhard Hirsch ...»

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Understanding the economic decision making behavior of

professionals with a non-economic background:

The behavior of German doctors in situations requiring the consideration of

medical and economic understanding

Tim Rosengart

July 17, 2009

This is a Bucerius/WHU MLB thesis

12,832 words (excluding footnotes)

Supervisor 1: Professor Dr. Bernhard Hirsch

Supervisor 2: Ingar Brüggemann


Bedanken möchte ich mich bei den vielen lieben Menschen, ohne deren wohlwollende Unterstützung und gute Worte, die Erstellung dieser Arbeit nicht möglich gewesen wäre.

Ich habe in meinem Leben immer das große Glück gehabt, von sehr vielen Menschen, auch in ganz unerwarteten Momenten, viel Gutes erfahren zu haben.

Ganz besonderer Dank soll folgenden Menschen zuteil kommen:

Herrn Professor Hirsch von der Bundeswehr Universität München, der mir die Freiheit gegeben hat, ein Thema zu wählen, dass mich wirklich interessiert, der sich von Herzen gefreut hat, mich während meiner Arbeit zu begleiten, der ein offenes Ohr für meine Fragen hatte und mir gute Ratschläge gegeben hat.

Meinen Eltern kann ich eigentlich nicht genug danken. - Dafür, dass Sie jeden Tag für meinen Bruder Christopher und mich arbeiten gehen, um uns alles Erdenkliche zu ermöglichen. Dafür, dass Sie mich auch in jeder sonst erdenklichen Art und Weise unterstützen. Noch wichtiger als die Unterstützung, die Ihr mir gebt, sind jedoch das Interesse und Euer Glaube an das, was ich tue und das damit verbundene Vertrauen und Verständnis. Am Wichtigsten sind mir jedoch die unendliche Liebe und Güte, die Ihr mir an jeden Tag meines Lebens schenkt. Danke!

Danken möchte ich auch noch meinem lieben Bruder Christopher dafür, dass er immer an mich glaubt. Ich bin sehr stolz auf Dich und das was Du tust.

Hamburg, im Juli 2009 Table of contents Table of contents IV Table of figures V Abbreviations VI

1. Introduction, Problem statement, Methodology, Structure 1

1.1 Introduction 1

1.2 Problem statement 2

1.3 Methodology 3

1.4 Structure 4 2.

–  –  –

ASHIP Association of Statutory Health Insurance Physicians CDU Christlich Demokratische Union EKG Electrocardiogram etc. et cetera (and the rest / and so on) et al. et alii (and others) GMA German Medical Association i.e. id est (that means / in this case) SGB V Sozialgesetzbuch Fünftes Buch SPD Sozialdemokratische Partei Deutschlands

–  –  –

This Master’s thesis aims to provide an understanding the economic decision making behavior of professionals with a non-economic background. The problem is applied to doctors with their own practices, because on the one hand these doctors are self-employed entrepreneurs with personal economic interests, but on the other hand they are also medical practitioners with an assumed interest in the well-being of their patients.

Conflicts inevitably result from this double relationship in almost any situation which involves economic decision making by doctors. The thesis will, therefore, investigate how doctors behave in those situations which require the weighing of patients’ interests against their own utility and will further try to understand what their approach to economic decision making in general is.

–  –  –

Professionals in many jobs are responsible for making decisions involving tremendous amounts of money; most, however, are to be assumed in a position of not being optimally prepared for this task.

In the context of decision making theory, optimally prepared is understood as a situation in which an individual is in possession of all the information he needs to make the decision and, further, has the cognitive ability to process this information in a meaningful way. In the case of doctors, one has to assume that even if they are in possession of adequate information, they are still not in a position to process this information and come to economically optimal decision outcomes, due to their educational background.

Furthermore, investigating doctors’ behavior should be of particular interest because it is assumed that many medical practitioners’ motivation to become a doctor was not exclusively based on materialistic reasons, as it is the case with most other professions, but rather was based on altruistic enthusiasm. Even though this might not be true for an increasingly large number of doctors, this is what is expected from doctors by a large majority of the German population who traditionally sees the doctor’s job as a very special vocation.

Nevertheless, even the most altruistic physician who possesses his own practice faces complex economic decisions and threats to his personal existence. In a constantly changing environment, he has to deal with many external stakeholders, who all aim to influence his decision making and prioritize their own utility over his.

Based on decision making theory and an analysis of the aforementioned environment and the stakeholders who influence doctors’ economic decision making, expectations in the form of hypotheses on the expected decision making behavior of doctors can be formulated.

It shall, therefore, be the objective of this thesis to test these hypotheses and to make an inference on the economic decision making of doctors.

–  –  –

To achieve its objective, this thesis will provide a general introduction to decision making theory in chapter two. Chapter three will make use of these insights and apply them to the context of doctors with their own surgeries, by analyzing their environment and discussing the stakeholders who affect their economic decision making.

Based on the insights derived from chapter two and three, hypotheses on the economic decision making behavior of doctors will be derived and then tested in chapter four.

Interviews with a limited number of physicians was chosen as the most adequate method to test the developed hypotheses and will also serve as a source of information for other parts of the text.

To bring about a situation in which doctors do not only act as doctors, but also as entrepreneurs with strong personal economic incentives, an investigation into the behavior of physicians who work in hospitals was not pursued. It was rather decided to concentrate on medical practitioners with their own practices, for a number of reasons: As said before, doctors with their own surgeries, on the one hand, are expected to behave as entrepreneurs with strong economic incentives and their personal existence, in most cases, tied to their surgery, but on the other hand, they are medical practitioners who care, or at least are expected to care, about the well being of their patients. Additionally, physicians are assumed to be sub optimally prepared for these kinds of situations by their educational background.

–  –  –

The structure of the thesis is based on its methodological approach.

Chapter two will provide an introduction into decision making theory, while chapter three aims to apply this theory to the context of medical practitioners with their own practices. Therefore, chapter three will describe the environment of doctors with their own surgeries and discuss the external stakeholders who affect their economic decision making. Chapter four tests the hypotheses on doctors’ economic decision making, which are developed based on the findings of chapter two and three, by means of interviews that were conducted with physicians and whose replies are provided in the appendix of this work. Chapter four also applies these findings to a practical context and provides an outlook on potential further fields of research.

Figure 1 aims at providing an overview on the structure of this Master’s thesis.

–  –  –

Decisions can be defined as the selection of one particular alternative out of a set of many alternatives which are available for the achievement of one specific goal. Decisions are characterized by three criteria. First, there needs to be a real choice among alternatives. Second, the decision maker is aware of these choices and makes a conscious choice for one of them. Third, the choice which is made needs to be actually executed.1 In this thesis, no difference will be made between individual and group decision making and this introduction will limit itself to decision making on an individual level due to its explicit relevance for part three of this thesis.

The degree of certainty in decision making depends on the level of information which is available to the decision maker about the situation in which a decision is made, as well as the level of information about possible outcomes which might result from the execution of one available alternative in a decision context2. Bamberg et al. argue that both levels of information are equally important for the degree of certainty in any decision making. It is also argued that, as soon as either the level of information about the situation in which a decision is made or the information about possible outcomes is below the optimal level, “the below-optimal level of information is dominant”3 and a decision under complete certainty is no longer possible. This relationship is summarized in figure 2.

–  –  –

Figure 2: Relationship between the level of information and certainty in decision making Source: Bamberg et al. (2008), p. 25.

Compare Bekmeier – Feuerhahn (2008a), p. 3.

Compare Bamberg et al. (2008), p. 24 f..

Bamberg et al. (2008), p. 24.

This thesis will limit itself to broadly distinguishing between decisions under certainty and decisions under uncertainty.

Most scholars accept this common theoretical distinction between normative and descriptive decision making theory.4 Nevertheless, it has to be mentioned that Kahle, for example, uses a more detailed distinction and talks of “normative and prescriptive decision making theory”.5 He bases his argument on the assumption that decision making theory proposes recommendations for a better achievement of objectives and therefore has to be defined as prescriptive. He stresses the difference from any normative approach which would, from his point of view, also propose [normative] objectives to be achieved.6 In German literature, the phrases normative and prescriptive are often used “interchangeably”7 and the thesis at hand will follow this example.

Normative decision making theory tries to structure problems by constructing formal models which contain decision-relevant information. Based on these models, problems are solved on rational and logical grounds and normative solutions are provided. Normative decision making theory states how decisions should be made Descriptive decision making theory, on the other hand, describes and tries to explain how decisions are actually made.

Bamberg argues that insight into descriptive models which describe and explain the actual decision making behavior of human beings in different situations, is a necessary “precondition”8 to develop valid normative models. He is convinced that any theoretical decision making model has to rely on a “close synthesis of insights derived from both, descriptive and normative decision making theory” 9 to optimally achieve its purpose.

The purpose of decision making theory, in general and in the context of business administration in particular, is to “help solving [reoccurring] practical decision making problems”10 by “assisting and directing decision makers in order to make them achieve their desired objectives to the highest degree possible.”11 Similarly, Bartscher/Bomke see the purpose in achieving decisions which are optimal in a sense that they create the “highest possible utility for the decision maker.”12 Compare Abelson/Levi (1985), p. 231.

Compare Kahle (1981), p. 24; Also compare Schneeweiß (1991), 82ff..

Compare Kahle (1981), p. 24.

Bartscher/Bomke (1993), p. 50.

Bamberg et al. (2008), p. 11.

Bamberg et al. (2008), p. 11.

Bamberg et al. (2008), p. 11.

Bamberg et al. (2008), p. 11.

Bartscher/Bomke (1993), p. 51.

Bartscher/Bomke argue that if is this purpose can be achieved, a decision has to be regarded as “rational and logical in the sense of the normative decision making theory”13.

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