Modelling Bounded Rationality in Organizations: Progress and Prospects

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

doi:10.1080/19416520.2015.1024498

Cited by 59 publications

(55 citation statements)

References 167 publications

(143 reference statements)

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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, 2005;Weaver, 2014). 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, 2015); but without ethics, it would be impossible to embody a culture of compliance (Parker & Gilad, 2011).…”

Section: Th E H a Rm On I Zed A P P Roa C H: Th E Cha L Le N Ge Of mentioning

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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Section: Th E H a Rm On I Zed A P P Roa C H: Th E Cha L Le N Ge Of mentioning

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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“…They face an iterated choice under uncertainty in a dynamic environment (Noda and Bower, 1996). For this reason, we use a multi-armed bandit, a classic model to study iterated choice problems (Gittins, 1989), which has also been picked up to study the exploration-exploitation trade-off in organizational learning (Denrell and March, 2001;Posen and Levinthal, 2012;Puranam et al, 2015).…”

Section: Modelmentioning

confidence: 99%

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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“…Following previous work on bounded rationality (see, e.g., Puranam, Stieglitz, Osman, & Pillutla, ) and recent editorial calling for more rigorous analytical approaches to theory building (Ethiraj, Gambardella, & Helfat, ), we address our research questions by developing a formal model which captures the different biasing effects of overconfidence on CEOs' reactions to high and low levels of performance feedback. Our analysis suggests that CEO overconfidence will be associated with a lower willingness to increase firm risk taking in the case of negative performance feedback, and a higher willingness to decrease risk when receiving positive feedback.…”

Section: Introductionmentioning

confidence: 99%