Name: Maham Rasheed

ERP: 22431
Course: Behavioral Finance

KING FISHER AIRLINES CASE

The emergence and ultimately failure of Kingfisher Airlines (KFA) can be viewed through the
perspective of behavioral economics and psychology, which explore the impact of psychological
factors on individual and institutional economic decisions. Here's an in-depth analysis of the
behavioral elements that could have contributed to KFA's trajectory.

1. Overconfidence and Optimism Bias:

Vijay Mallya's success in the stock market may have established in him an overconfidence and
bias towards optimism, causing him to undervalue the aviation industry's intricacies and
competitiveness. This could have led to unduly optimistic projections for KFA's success, and an
underestimation of the hazards involved.

2. Hubris Hypothesis:

Mallya's flashy public presence and propensity for extravagant lifestyle may indicate hubris,
which in business can lead to risk-taking behaviors and strategic judgements based on personal
desire rather than thorough analysis or empirical facts. KFA's emphasis on becoming a luxury
airline with high-end features may reflect Mallya's personal brand rather than a purposeful
market positioning.

3. Confirmation Bias:

Decision-makers may prioritize information that supports their pre-existing ideas or hypotheses.
For KFA, this could have meant emphasizing prizes and recognitions while ignoring or
rationalizing unfavorable financial signs.

4. Cognitive Dissonance:
Despite KFA's exceptional marketing, the acquisition of a low-cost airline such as Air Deccan
shows cognitive dissonance. Despite contradicting the airline's established market stance, this
choice may have been defended internally as a means of enabling international flights more
swiftly.
5. Sunk Cost Fallacy:

KFA's choice to continue investing in the airline instead of cutting losses could be due to the
sunk cost fallacy, where earlier investments justify further expenditures in the expectation of
improving the situation.

6. Escalation of Commitment:

This term refers to the phenomena in which people increase their investment in a decision
according to prior commitments rather than present circumstances. As KFA's obligations grew,
the decision to undertake debt restructuring rather than bankruptcy or sale could be attributed to
an increase in commitment.

7. Herding Behavior:

Entry into the aviation industry during a boom may have been motivated by herding behavior,
where enterprises enter a market based on others' actions, rather than a clear strategic
purpose.

8. Negative Feedback Loops:

KFA may have underestimated the impact of operational challenges, such as flight
cancellations, on public opinion, demand, and financial losses, exacerbating the company's
troubles.

9. Regulatory and Market Myopia:

KFA may have suffered from a short-term mindset, failing to adequately account for prospective
legislative changes in the aviation sector or long-term market trends that could affect their
business model.

Understanding these characteristics could help explain why KFA continued to operate as a
going concern and why investors initially saw the company as sustainable despite its financial
issues. These behavioral characteristics emphasize the difficulties of human decision-making in
the business world, particularly when charismatic leadership and ambitious corporate endeavors
are involved.