Companies have the cash, and there are low-cost options out there, and yet corporate investment is down.  In the latest McKinsey Quarterly, Tim Koller, Dan Lovallo, and Zane Williams try to make sense of this "puzzle."  In sharing some data from a recent McKinsey survey, the authors argue that executive know that they should be investing more now.  Take a look:

So what is the holdup?  The authors point to the usual suspect--the lagging, uncertain economy.  But they also put weight on "decision biases."

Generally, the most common biases that affect decisions could be traced to the past experiences of those who make or support a proposal. The confirmation bias, for example, was the most common one—decision makers focus their analyses of opportunities on reasons to support a proposal, not to reject it. Depending on the proposal, this bias can result in decisions to underinvest or not to invest at all just as easily as in decisions to overinvest. Another common bias was a tendency to use inappropriate analogies based on experiences that aren’t applicable to the decision at hand. A third was the “champion” bias—managers defer more than is warranted to the person making or supporting an investment proposal than to merits of the proposal itself.

The presence of behavioral bias seems to have a substantial effect on the performance of corporate investments. Respondents who had reported observing the fewest biases were also much more likely to report that their companies’ major investments since the global financial crisis began had performed better than expected. By contrast, those who reported observing the most biases were more likely to report that their companies’ investments had performed worse than expected.

Those biases then lead to more conservative thinking, and loss aversion. Read A bias against investment? here.