THREE ERAS IN THEORIES OF CHOICE: A FEW MINOR RUMINATIONS OF AN ANCIENT MARINER James G. March (Stanford University) August 11, 2008 MOC Academy of Management.

THREE ERAS IN THEORIES OF CHOICE:

A FEW MINOR RUMINATIONSOF AN ANCIENT MARINER

James G. March(Stanford University)

August 11, 2008MOC

Academy of ManagementAnaheim, California, U.S.A.

A FEW PRELIMINARIES

SMALL SKETCH OF A MINOR HISTORY: THE POST WORLD WAR II STUDY OF ORGANIZATIONAL CHOICE

Incomplete

► Annual Review of Psychology 2008 piece on “Cognition in Organizations” by

Gerard Hodgkinson and Mark Healey ► The Oxford Handbook of Organizational Decision Making, 2008, edited by Gerard Hodgkinson and William Starbuck

Parochial (North American)

Enthusiastic

Personal

BACKGROUND:ALTERNATIVE CONCEPTIONS OF ADAPTIVE INTELLIGENCE

Learning: Modifying propensities for particular actions on the basis of experience with them

Imitation: Copying the enduring behaviors of others

Selection: Modifying the mix of rules through differential birth and elimination

Rationality: Choosing among alternatives on the basis of expected consequences and preferences

BACKGROUND:EXPERIENCE AS A BASIS FOR INTELLIGENT ACTION

► Looking for something that might describe reality

► Looking for something that might guide improvement

The search for a frame

Different conceptions of the basic process

► Using experience to improving the estimations of probable consequences

► Developing an understanding of the processes of history through experience

► Replicating the successes of experience

BACKGROUND: ECONOMICS IN THE STUDY OF ORGANIZATIONAL CHOICE

► The framing of studies of information and choice by decision theory and micro-economics

Intellectual

► The migration of organization studies to business schools

► The dominant role of economic theory in business schools

Institutional

Strong in theory, weak in experimental data

BACKGROUND: COGNITIVE SCIENCE IN THE STUDY OF ORGANIZATIONAL CHOICE

Institutional► Merger of psychology, computer science,

and neural biology after World War II

► Focus on experiments, micro phenomena

Intellectual

Strong in experimental data, weak in theory

► Connected to the development of a decision making-based, business school-based effort to create an “organization theory”

BACKGROUND: MANAGERIAL AND ORGANIZATIONAL COGNITION

Two sets of parents: Economics and psychology

► What problems are interesting?

► Where do you publish?

The pursuit of respectability

► Different traditions and methods

► Different aspirations and power

► Part of a discipline (which?) or a new discipline?

Location in business schools as part of organizational studies

BACKGROUND: THE INSTITUTIONAL AND INTELLECTUAL CONTEXT

The context of particular times

► Business schools

► Shifting enthusiasms

The context of particular ideas

► North American prominence

► Cycles in resources, standing, and optimism

► Geographic and disciplinary enthusiasms

The context of particular institutions

► Big ideas and little ideas

THE CONTEXT OF THREE ERAS IN MODERN SOCIAL SCIENCE

1945-1965: An era of optimism, science, and interdisciplinary flirtations

1965-1985: An era of pessimism, postmodernism, and disciplinary monasticism

1985-2005: An era of professionalism and the triumph of individualism, consequentialism, and objectivism

1945-1965POST WORLD WAR II TRANSFORMATION

Growth of North American academic research institutions

Hopes for social science

Commitments

► Science

► Mathematics

► Interdisciplinary, behavioral social science

► Social science applied to improve life

1945-1965THE SPIRIT OF THE TIME

Recognized few boundaries on the possibilities for knowledge

Saw progress in knowledge as produced by an elite cadre of rigorously trained and deeply

motivated scholars who would create an understanding of human behavior that would eclipse all previous understandings.

Saw much scientific knowledge as necessarily interdisciplinary

1945-1965THE ETHOS OF THE TIME

Unquestionably naive

Uncompromisingly protestant

► Intolerant of incompetence

► Intolerant of multiple-mindedness

► Intolerant of sloth

Unyieldingly confident in the triumph of science and truth over ignorance

Unequivocally positivist

1945-1965AN “OPEN” ECONOMICS ELITE

Enthusiasm for mathematics and for interdisciplinary contacts

Cowles Commission, RAND Corporation, Center for Advanced Study in the Behavioral Sciences

The courtship of psychology

►Briefly pursued: Social psychology

►Mostly foregone: Cognitive psychology

1945-1965THE REFORM OF NORTH AMERICAN BUSINESS SCHOOLS

Substantial changes in students, faculty, research, and academic standing

Relevance here

Prelude to a counter-revolution, 1980s & 1990s

Business schools before the Second World War

► Accentuated importance of economics as frame

► Business schools became significant sites for research on choice and organizations

1945-1965THE “REVOLUTION” OF THE TIME

Enormously expanded the scale (in terms of personnel and resources) of the research community in social science

Transformed the nature of social science to make it significantly more committed to the norms

of science

Established basic frameworks for theoretical work that have continued to frame much

subsequent work

Created the conditions for a counter-revolution

1965-1985AN ERA OF DISCONTENT

The deconstruction of social science

The wounding of sociology

►Foucault, Derrida, Heidegger, Habermas

► Marx, Vietnam, and feminist challenges

The differentiation of economics, psychology

► The revolt against the post-war North American establishment and ethos

The end of unlimited resources

► The rediscovery of qualitative methods

1965-1985THE DRIFT OF INTELLECTUAL FASHION

Economics

Sociology► Less mathematical

► Less positivist

► More mathematical► Less empirical► Less interdisciplinary

► Less interdisciplinary

► Less highly regarded as a science

► More highly regarded as a science

1965-1985THE DRIFT OF INTELLECTUAL FASHION (continued)

The recovery of European social science

The case of post-modernism and related ideas

► Growth of universities and resources

► Flowering of social construction

► Conspicuous basis for conflict

► Partial differentiation from North America

► More obvious penetration of anthropology and sociology than of economics and psychology

► Greater penetration of Europe than North America

1965-1985THREE ENDURING MARKS OF AN ERA

Reduced optimism

► About the prospects for scientific understanding of human behavior and institutions

► About using social science to improve life

The isolation and purification of disciplines

The sanctification of economic theories of choice and their export to other fields

► About the romance of research and teaching as a noble calling

1985-2005AN ERA OF MARKETS AND THE GLORIFICATION OF ENTREPRENEURSHIP

The apparent stagnation of economic theory

► Few striking new ideas► Minor lemmas

The counter revolution in business schools and the quest for relevance

The collapse of the Soviet Union and the triumph of markets and entrepreneurship

The counter revolution in social science and the quest for a reconciliation of theories, stories, and data

1985-2005THE ENNOBLING OF A SMALL CORNER OF COGNITIVE SCIENCE

Tversky and Kahneman as prophets and symbols

► Nobel Prize

► Science paper, Econometrics paper

The tension between economic simplicity and psychological reality

The burgeoning of behavioral decision studies

1985-2005A SUCCESS STORY: ECONOMICS

A small connection to cognitive studies

► Legitimizing behavioral finance

► Legitimizing the behavioral foundations of bounded rationality

Endowed intendedly rational actor with somewhat more realistic properties in some domains

► Legitimizing neural economics

1985-2005A SUCCESS STORY: COGNITIVE SCIENCE

Clarified many important aspects of individual behavior in economies and organizations

Laid the groundwork for further work, including extensions into neural biology.

Reestablished individual psychology as a primary basis for understanding choice behavior

modeled as the estimation of consequences

1985-2005ECONOMICS: A THEORY OF AUTONOMOUS INDIVIDUALS

The firm in economic theory

► Classic: The individual rational owner / manager

► Modern: Principals and agents

The firm in evolutionary economics

► Classic: Individual firm selected upon

► Modern: Routines and forms selected upon

Neither takes the organization very seriously

1985-2005PSYCHOLOGY: A THEORY OF AUTONOMOUS INDIVIDUALS

The individual as a coherent, autonomous organism

Social context treated as exogenous and passive

► Coordinated by a central nervous systems► Explicable without reference to history,

institutions, or social context except as those are reflected in current organism

The embedding of individuals in organizations and other social institutions largely ignored

CONTEMPORARY BLINDERS 1: INDIVIDUALISM

The notion that the fundamental building block of social science is the autonomous individual

Relation to reductionism (and therefore to disaggregating to smaller elements of organisms)

► Relation to human conceits

► Relation to economics

A focus on individual choice not organizations► Experiments on individual choice

► Applications to individuals in organizations

CONTEMPORARY BLINDERS 2: CONSEQUENTIALISM

Economic theories of choice and their extension to other disciplines

Overlooks rules (heuristics) and identities

Overlooks emotions

► Investigating estimations of consequences

A focus on consequentialism not rule-following

► Investigating risk preferences

CONTEMPORARY BLINDERS 3: OBJECTIVISM

► The notion that human cognition is to be understood by relating it to a measure of objective correctness.

Two visions of the convergence of adaptation

► Convergence to an objectively correct answer

► Convergence to a socially shared answer

Need to understand the processes and potential failures of social consensus

A focus on objectivism not social construction

TAKING ORGANIZATIONS SERIOUSLY: ECONOMIC THEORIES OF THE FIRM

Boundedly rational choice in organizations► Distributed knowledge and memory► Distributed expectations

► Rules, routines, appropriateness Identities in organizations

► Creation, recognition, and retrieval

► Distributed preferences and evaluations

The social construction of success and failure

The role of emotions

► Rediscovery of institutions

The role of imitation

TAKING ORGANIZATIONS SERIOUSLY: PSYCHOLOGICAL THEORIES OF THE INDIVIDUAL

Theories of organizations are better foundations for theories of individuals than theories of individuals are for theories of organizations

► Problems of coherence, coordination, conflict► The development and use of identities and

routines

In particular, need to bring to more prominence in psychology

► Preference and identity ambiguity and conflict

IN SUM:

An unfinished story

An impressive success story

A role for students of organizations

► A delicate combination of disciplinary rigidity and interdisciplinary tenacity

THE END