Occupational A Practical Guide For Managers_11

Foundations 35 timing, and participation in decision making greatly affects the deci-sion (March and Olsen 1976; Ocasio 1995). It is difficult for organi-zations to ensure that interested and knowledgeable participants will be available for all its decision making, since so many decisions need to be made and it is not always clear a priori which decisions are most important. The result is fluid participation (Cohen, March, and Olsen 1972), with organizational members allocating varying amounts of time to different decision domains depending on their preferences and time constraint. Fluid participation makes the set of participants present at a given decision-making occasion unpredictable. This adds variability to the decision-making process, and can result in delayed decision mak-ing and decisions made through matching a smaller set of problems and solutions than full participation would give (Cohen, March, and Olsen 1972). Fluid participation may cause organizational decisions to be more like those of individuals by reducing the number of interested and knowl-edgeable decision makers present to the point where others will defer to the manager with the greatest interest in the decision. Who this manager is will vary, so the end result is not necessarily predictable, but a notable feature of fluid participation is its potential for creating organizational inertia. Organizational changes often cause a few to suffer for the benefit of the whole, such as when poorly functioning organizational units are reorganized in order to raise overall competitiveness. Clearly members of the unit targeted for change have intense preferences against change proposals, and others may have only mild preferences in favor, leading to inertia in organizations where participation in a given decision-making situation is determined by the intensity of preference for or against the alternatives under consideration. Group decision-making work provides some confirmation that the ideas of the social psychological literature and the behavioral theory of the firm link up. There are mechanisms that can make a group aspiration level behave like an individual aspiration level, and mechanisms that can make a group decision behave like an aggregate of individual decisions plus some process-induced variability. This work also adds the compli-cation that members of decision-making groups may have differing goal variables or aspiration levels. Some theoretical attention has already been given to this problem in the literature on organizational responses to per-formance feedback, and is described in section 3.1, when the creation of aspiration levels is discussed. It is still an issue with little empirical work on organizational behaviors, so it is high on the list of unsolved problems in the literature. 36 Organizational Learning from Performance Feedback 2.3 Economics Economics is built on the rational choice paradigm, which differs from boundedrationalityinhavingamaximizationassumption.Rationalactors donotsatisfice,andthusdonotneedgoalstoknowwhethertobecontent. Because of this assumption, one does not expect much research relevant to performance feedback theory in economics. Nevertheless, it can be found. A small but growing literature on goal-seeking behavior is found in the work on learning in experimental games. Game theory (Fudenberg and Tirole 1991; Kreps 1990) uses assumptions on rationality to deduce the optimal choice in situations where the benefits to each actor is a function of their own choice and that of the others. Its theoretical branch uses reasoning of the form “if I do x and my opponent does y, then neither of us can do better by unilaterally changing our action” (i.e., a Nash equilibrium), which allows the analyst to find a set of actions that form a unique equilibrium, no set of single actions that does so, or many that do, depending on the nature of the game. The equilibria are usually viewed as predictions of behavior in economic situations with the same characteristics, but this view has been criticized by scholars who view the form of reasoning leading to Nash equilibria as too remote from actual human decision making (Radner 1996). Selten has argued that aspiration level theory is a good foundation for making economic models of boundedly rational decision making (Sauermann and Selten 1962; Selten 1998a, 1998b) A diverse set of experiments has been conducted to find out how de-cisions are actually made in games and similar decision-making situa-tions (Camerer and Ho 1999; Crawford 1995; Roth and Erev 1995; Selten 1998b), and work has advanced enough that distinct approaches have crystallized. The first distinction is whether the situation involves strong conflicts of interest between the parties, as in bargaining over fixed pies, or a stronger aspect of coordination, as in production where coor-dinated efforts maximize productivity. Games often involve both conflict and coordination, so this distinction is a matter of degree. The second distinction is whether the decision making is modeled as pure reinforce-ment learning, goal-directed learning, or optimization with learning of opponent behavior. This level of strategic sophistication in the decision making is important to game theorists because the lower levels lead to behavior that can differ appreciably from the game-theoretic optimum (Costa-Gomes, Crawford, and Broseta 2000; Crawford 1997; Roth and Erev 1995). To students of performance feedback, the mid-level the-ory of goal-directed learning is of special interest because it corresponds to the use of aspiration levels to explain individual behavior in social Foundations 37 psychology and organizational behavior in the behavioral theory of the firm. This literature has revealed considerable use of aspiration levels and great flexibility in how individuals form aspiration levels. Some experi-ments have shown effects of goals based on the player’s own experience in much the same way as historical aspiration levels are formed in the be-havioral theory of the firm (Crawford 1995, 1997; Ostmann 1992; Van Huyck, Battalio, and Rankin 1997). The crucial feature of these experi-ments is that the game was repeated, making past outcome information availabletothesubjects.Whenpastoutcomesarenotavailabletosubjects but other kinds of information are, subjects use a diverse set of alterna-tive information sources to form aspiration levels. Social comparison or assigned goals are used when available (Pingle and Day 1996), analysis of the game payoff structure can be used (Costa-Gomes, Crawford, and Broseta 2000), loss/gain framing effects suggest that zero can be used as an aspiration level (Cachon and Camerer 2000), and general norms of fairness are invoked in situations where they are seen as applicable (Hennig-Schmidt 1999). A caution in interpreting this variability in goal sources is that the experiments usually make only one source of goals available (or at least most salient), so they show flexibility in using dif-ferent kinds of goal-relevant information rather than variability in which kind of information is preferred. Unlike the social comparison literature, most of these experiments are not designed to show which information is preferred. An interesting exception is that an experiment with both a historical aspiration level and a loss frame showed that the prospect of a loss affected choices so greatly that the effect of the historical aspiration level disappeared (Cachon and Camerer 2000). As in the psychological work on goal fulfillment, aspiration levels have been shown to affect behaviors in a variety of situations. In bargaining situations, groups of negotiators with high aspiration levels had higher level of demands, longer duration of negotiations, and higher rate of fail-ing to reach agreements (Hennig-Schmidt 1999). In coalition-formation games, individuals with high aspiration levels were more active in seek-ing to influence others and obtained higher payoffs (Ostmann 1992). In repeated joint production situations with a reward for high group-level (median or lowest) choice but disincentives to contribute more than the group choice, the individual choices were controlled by historically up-dated aspiration levels (Crawford 1995). All these experiments showed that individuals used aspiration levels to determine their choices, as in bounded rationality. Some experiments introduce interesting methods for studying aspira-tion levels. Hennig-Schmidt (1999) videotaped decision-making groups 38 Organizational Learning from Performance Feedback as they considered which offer to make in a bargaining situation, and found that aspiration levels were spontaneously mentioned during the discussions. This procedure verifies that individuals use aspiration levels in their decision making even when they are not prompted (by researcher instructions or other manipulations) to do so. It is still possible to inter-pret the results as indicating that aspiration levels are needed to explain suggested strategies but not to make them, but that explanation raises the question of why aspiration levels rather than some other explana-tion should be used. It seems more natural to suggest that the discussion reflects the actual reasoning of the subjects. Experimentaleconomicsseemstoreinforceperformancefeedbackthe-ory in three ways. First, the experiments show that many subjects pre-fer performance feedback to analysis of the structure of the game, as bounded rationality would predict. Second, the experiments reveal such a wide range of sources of aspiration levels that they suggest that indi-viduals need aspiration levels so much that they are prepared to cast a widenetintheirsearchforthem.Finally,experimentsineconomicsoften use cover stories that mimic managerial decisions such as negotiations or production decisions, so they are another research tradition that seeks to give results that easily transfer to real organizations. In the next chapter I will integrate the theory and findings of these foundation pieces, and in chapter four I will go through the evidence from organizational decision making. 3 Model A central idea of performance feedback theory is that decision makers use an aspiration level to evaluate organizational performance along an organizational goal dimension. An aspiration level has been defined as “the level of future performance in a familiar task which an individual... explicitly undertakes to reach” (Frank 1935), as a “reference point that is psychologically neutral” (Kameda and Davis 1990: 56) or as “the smallest outcome that would be deemed satisfactory by the decision maker” (Schneider 1992: 1053). It is a result of a boundedly ratio-nal decision maker trying to simplify evaluation by transforming a con-tinuous measure of performance into a discrete measure of success or failure (March 1988; March and Simon 1958). The aspiration level is the borderline between perceived success and failure and the starting point of doubt and conflict in decision making (Lopes 1987; Schneider 1992). Aspiration levels are the center of the theory. Before the aspiration level can take effect, some cognitive process must form it. Once the as-piration level is set, comparisons with performance guide organizational change processes. Here I develop the theory in the same order, starting with how aspiration levels are made and continuing with how they affect the organization. The origins of aspiration levels include learning from the performance of oneself, learning from the performance of others, or direct learning of the aspirations of others (Lewin et al. 1944). Aspira-tion levels have both direct behavioral consequences such as risk-taking or innovations and outcome consequences such as the performance or survival that results from making appropriate changes. Behavioral consequences will be discussed first, followed by a discussion of sim-ulation studies on how aspiration-level learning contributes to organiza-tional adaptation. Finally I discuss how organizational goal variables are chosen. 39 ... - tailieumienphi.vn