Modelling Bounded Rationality in Organizations: Progress and Prospects

Puranam, Phanish; Stieglitz, Nils; Osman, Magda; Pillutla, Madan M.

doi:10.5465/19416520.2015.1024498

Cited by 103 publications

(69 citation statements)

References 149 publications

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“…They face an iterated choice under uncertainty in a dynamic environment (Noda and Bower, ). For this reason, we use a multi‐armed bandit, a classic model to study iterated choice problems (Gittins, ), which has also been picked up to study the exploration‐exploitation trade‐off in organizational learning (Denrell and March, ; Posen and Levinthal, ; Puranam et al., ).…”

Section: Modelsupporting

confidence: 83%

“…Agents represent managers that allocate resources to alternative strategic actions. An agent makes a choice n among N possible alternatives in each time step t , and then learns about the expected payoff by forming estimates based on performance feedback from the chosen action (Puranam et al., ). To model the learning process, we use the following specification:

\begin{matrix} E_{n, t + 1} & = E_{n, t} + ϵ \frac{((), π_{n, t} - E_{n, t})}{true {truefalse\sum}_{i = 1}^{t} T_{n, t}} \\ + (1 - ϵ) (π_{n, t} - π_{n, t - 1}), \end{matrix}

…”

Section: Modelcontrasting

confidence: 77%

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Adaptation and inertia in dynamic environments

2015

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Research summary: We address conflicting claims and mixed empirical findings about adaptation as a response to increased environmental dynamism. We disentangle distinct dimensions of environmental dynamism—the direction, magnitude, and frequency of change—and identify how selection shapes adaptive responses to these dimensions. Our results show how frequent directional changes undermine the value of exploration and decisively shift performance advantages to inert organizations that restrict exploration. In contrast, increased environmental variance rewards exploration. Our results also show that, in dynamic environments, the best‐performing organizations are generally more inert than less successful organizations. Managerial summary: Our research helps managers to understand under what business conditions investments into exploration and strategic flexibility are more likely to pay off. Dynamic business environments characterized by persistent trends and by large, infrequently occurring structural shocks reward strategic pursuit of temporary advantage. Thus, exploration and strategic flexibility are preferred strategies. In contrast, the challenge in frequently changing environments with fleeting opportunities is to identify and to focus on strategic actions whose payoffs on average are high, independent of environmental volatility. Low levels of exploration and long‐term strategic focus are preferred strategies in these circumstances. Copyright © 2015 John Wiley & Sons, Ltd.

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Section: Modelsupporting

confidence: 83%

\begin{matrix} E_{n, t + 1} & = E_{n, t} + ϵ \frac{((), π_{n, t} - E_{n, t})}{true {truefalse\sum}_{i = 1}^{t} T_{n, t}} \\ + (1 - ϵ) (π_{n, t} - π_{n, t - 1}), \end{matrix}

…”

Section: Modelcontrasting

confidence: 77%

Adaptation and inertia in dynamic environments

2015

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“…However, it is true that, assuming bounded willpower of the individual, there is an inevitable gap between regulation and successful implementation as there is between law and ethics (Page & Spira, ; Weaver, ). Without norms, structures, and standards, ethics would be reduced to voluntary regulation and it still may be the case that an ethical organization incurs serious technical errors—for example, due to the lack of strategic thinking—causing debacles (Puranam, Stieglitz, Osman, & Pillutla, ); but without ethics, it would be impossible to embody a culture of compliance (Parker & Gilad, ).…”

Section: The Harmonized Approach: the Challenge Of Integrity In Legalmentioning

confidence: 99%

Can compliance restart integrity? Toward a harmonized approach. The example of the audit committee

Calderón

Piñero

Redín

2018

Business Ethics: A Eur Rev

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The compliance‐based approach and the integrity approach have been the mainstream responses to corporate scandals. This paper proposes that, despite each approach comprising necessary elements, neither offers a comprehensive solution. Compliance and integrity, far from being mutually exclusive, reinforce each other. Working together, in a correct relationship, they build a harmonized system that yields positive synergies and which also advocates prudence (phrónesis). It enables the generation of a culture of compliance that tends to minimize the technical and ethical errors in decision making. In order to explore an applied harmonized approach, we analyze the audit committee, a specific and broadly accepted regulatory instrument. Formed by non‐executive members, regulation requires these members to be dedicated, qualified, and independent as a guarantee of efficiency. We show how the compound of those elements produces positive effects in a context of solid governance. We conclude that it is the strong relationship between efficiency and prudence, in the creation of a culture of compliance, which enables the minimization of errors.

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“…Even though the scenario technique is a rational way to cope with uncertainty, its users are subject to bounded rationality [122,143]. First, due to limited cognitive capabilities, not all possible relevant information can feed into the scenario development process [140] and not every conceivable scenario can be explored and considered.…”

Section: Bounded Rationalitymentioning

confidence: 99%

Scenarios in the strategy process: a framework of affordances and constraints

Tiberius

2019

Eur J Futures Res

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This paper challenges the solely rational view of the scenario technique as a strategy and foresight tool designed to cope with uncertainty by considering multiple possible future states. The paper employs an affordance-based view that allows for the identification and structuring of hidden, emergent attributes of the scenario technique beyond the intended ones. The suggested framework distinguishes between affordances (1) that are intended by the organization and relate to its goals, (2) that emergently generate organizational benefits, and (3) that do not relate to organizational but individual interests. Also, constraints in the use of scenarios are discussed. Affordance theory's specific lens shows that the emergence of such attributes depends on the users' specific intentions.

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Modelling Bounded Rationality in Organizations: Progress and Prospects

Cited by 103 publications

References 149 publications

Adaptation and inertia in dynamic environments

Adaptation and inertia in dynamic environments

Can compliance restart integrity? Toward a harmonized approach. The example of the audit committee

Scenarios in the strategy process: a framework of affordances and constraints

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