Bounded Rationality: Cognitive Limitations or Adaptation to the Environment? The Implications of Ecological Rationality for Management Learning

Lejarraga, José; Pindard-Lejarraga, Maud

doi:10.5465/amle.2019.0189

Cited by 21 publications

(11 citation statements)

References 73 publications

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“…Heuristics outperform more complex decision‐making strategies that consider (more) complete information, especially in uncertain situations where full information is not available (Gigerenzer & Gaissmaier, 2011). This efficiency of heuristic decision‐making explains why it is so widespread and persistently used, including by managers (Luan, Reb, & Gigerenzer, 2019; also: Lejarraga & Pindard‐Lejarraga, 2020). In fact, if we were to consider all possible options and optimize every decision, then making even simple decisions would take so long that we would be unable to function in everyday life.…”

Section: Conceptual Framework and Hypothesesmentioning

confidence: 99%

The consequences of short‐term institutional change in the rule of law for entrepreneurship

Mickiewicz

Stephan

Shami

2021

Global Strategy Journal

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Research Summary Past research views institutions as stable and slow to change and uses institutional differences to explain cross‐national variation in entrepreneurship. This article introduces a new perspective to institutional theory, that of short‐term institutional change. Integrating insights from cognitive science allows us to theorize not just about the significance of short‐term institutional change but also about why and how deterioration versus improvements in institutions have distinct effects. We test how short‐term institutional change impacts entrepreneurship in a cross‐country multilevel study. We find that short‐term change in the rule of law affects entrepreneurial entry and that institutional deterioration weighs heavier than institutional improvement. We argue and find that changes in the rule of law are more consequential for entrepreneurship compared to changes in business regulations. Managerial Summary It is known that the quality of institutions affects individuals' decisions to pursue entrepreneurship. Yet, we newly investigate effects of year‐to‐year changes in national institutions. Not only changes in business regulations matter, but also changes in more fundamental institutional aspects, especially in the rule of law. We find that institutional change has an impact because, on its basis, potential entrepreneurs form expectations about the future and therefore about the riskiness of their investment. Deteriorations compared to improvements in the rule of law are more consequential for entrepreneurship, consistent with the fact that losses loom larger than gains in human decisions.

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Section: Conceptual Framework and Hypothesesmentioning

confidence: 99%

The consequences of short‐term institutional change in the rule of law for entrepreneurship

Mickiewicz

Stephan

Shami

2021

Global Strategy Journal

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“…Going beyond the approach to the study of heuristics as inferior decision strategies (e.g. Kahneman and Tversky, 1979), we embrace the view that heuristics should not necessarily be associated with sub-optimal decisions (Gigerenzer, 1991(Gigerenzer, , 2004Guercini and Milanesi, 2020;Lejarraga and Pindard-Lejarraga, 2020). From a theoretical perspective, our framework integrates elements that are often in contrast with the nature itself of heuristics.…”

Section: Discussionmentioning

confidence: 99%

“…This positive approach has encouraged the rehabilitation of heuristics as a cognitive tool with an adaptive value (Guercini and Milanesi, 2020): heuristics are not irrational; rather they activate a different form of rationality, i.e. an ecological rationality, which occurs when there is a match between the heuristic and the decision environment (Gigerenzer, 2001(Gigerenzer, , 2004Lejarraga and Pindard-Lejarraga, 2020).…”

Section: Dual-process Theories Of Decision-making: the Role Of Heuristicsmentioning

confidence: 99%

The representativeness heuristic at work in decision-making: building blocks and individual-level cognitive and behavioral factors

Galavotti

Lippi

Cerrato

2021

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PurposeThis paper aims to develop a conceptual framework on how the representativeness heuristic operates in the decision-making process. Specifically, the authors unbundle representativeness into its building blocks: search rule, stopping rule and decision rule. Furthermore, the focus is placed on how individual-level cognitive and behavioral factors, namely experience, intuition and overconfidence, affect the functioning of this heuristic.Design/methodology/approachFrom a theoretical standpoint, the authors build on dual-process theories and on the adaptive toolbox view from the “fast and frugal heuristics” perspective to develop an integrative conceptual framework that uncovers the mechanisms underlying the representativeness heuristic.FindingsThe authors’ conceptualization suggests that the search rule used in representativeness is based on analogical mapping from previous experience, the stopping rule is the representational stability of the analogs and the decision rule is the choice of the alternative upon which there is a convergence of representations and that exceeds the decision maker's aspiration level. In this framework, intuition may help the decision maker to cross-map potentially competing analogies, while overconfidence affects the search time and costs and alters both the stopping and the decision rule.Originality/valueThe authors develop a conceptual framework on representativeness, as one of the most common, though still poorly investigated, heuristics. The model offers a nuanced perspective that explores the cognitive and behavioral mechanisms that shape the use of representativeness in decision-making. The authors also discuss the theoretical implications of their model and outline future research avenues that may further contribute to enriching their understanding of decision-making processes.

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“…The knowledge and value gaps as problematic predispositions, include untested prior knowledge (practice and academic), cognitive limitations (Lejarraga et al, 2020) and problems of understanding financial firms (Larsen, 2021), historic ways of thinking, and continued preference for finance only values (Gendron et al 2013).…”

Section: External and Internal Sources Of Problems At Financial Firm ...mentioning

confidence: 99%

Corporate Social Responsibility, Problems, Behaviour, and Change in Financial Firms

Holland¹

2022

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The research question is How can financial firms become corporate socially responsible (CSR)? Changes in financial firms and financial markets to become CSR oriented are being driven by global physical changes, intensive world-wide political and institutional pressures, and increasingly critical and demanding employees, customers, and civil society stakeholders (Dashwood, 2020).The change pressures combine with problematic internal firm predispositions (in knowledge, values, beliefs, organisation, behaviour etc) to exacerbate barriers to change and contribute to CSR problems, both historic and emerging.Empirical research into CSR problems in financial firms, and the wider debate about CSR change, reveals four themes. These are portrayed as four metaphors (Morgan, 1997) concerning: 'Head' (top teams), 'House' (socio-technical system), 'Community' (lived experience of employees, customers, and stakeholders), and decision making in a financial 'Machine'. These elements form a connected, interacting, changing system reflecting Hirshleifer's (2015) argument that there is a need to move from behavioural finance to social finance. CSR problems and demands for CSR change arise in each metaphor area and predispositions, and their dynamic interactions in firms and externally. These contribute to problems of CSR communication and reporting. This CSR empirical change narrative and metaphor elements are interpreted using literature and theory relevant to the whole system and each metaphor. This interdisciplinary analysis (de Bakker et al, 2019) is used to develop an equivalent theoretical narrative. The combined narratives form a CSR oriented 'Behavioural theory of the financial firm' (CSR BTTF).This conceptual framework is used to explore CSR problems in financial firms. It is means to think how to -manage and research CSR change problems and become fully CSR oriented. This knowledge strategy (Zack, 1999), by closing knowledge and value gaps within the firm and externally, in both practice and academic domains, directly addresses issues of uncertainty and complexity arising from CSR change. It is part of the evolving means to realign value in financial markets with values of wider society (Carney, 2020).The enhanced empirical and theory understanding in the CSR BTFF supports development of an academic research programme about 'CSR Finance' using a range of non-finance academic disciplines. The CSR BTFF is also a basis to develop firm-wide hypotheses for empirical tests in CSR finance (Poterba, 2021) and test for 'CSRwash' (Pope et al, 2016). It can encourage a rethink of research and theory development in finance (Gendron, & Smith-Lacroix, 2013Holland, 2019a. It contributes to developing holistic and integrated CSR communication and reporting. Thus, this holistic narrative and metaphor approach is a means to answer the question, 'What is going on here?' and to be able to 'stand back' and comprehend the bigger picture and central strategic issues when responding to uncertainty (p10, p528, Kay and King, 2020). The four-part ...

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Bounded Rationality: Cognitive Limitations or Adaptation to the Environment? The Implications of Ecological Rationality for Management Learning

Cited by 21 publications

References 73 publications

The consequences of short‐term institutional change in the rule of law for entrepreneurship

The consequences of short‐term institutional change in the rule of law for entrepreneurship

The representativeness heuristic at work in decision-making: building blocks and individual-level cognitive and behavioral factors

Corporate Social Responsibility, Problems, Behaviour, and Change in Financial Firms

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