Professional Documents
Culture Documents
Behavioral Strategy
Behavioral Strategy
Behavioral Strategy
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted
digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about
JSTOR, please contact support@jstor.org.
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
http://about.jstor.org/terms
Wiley is collaborating with JSTOR to digitize, preserve and extend access to Strategic Management
Journal
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Strategie Management Journal
Strat. Mgmt. 7., 32: 1369-1386 (2011)
Published online Early View in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.968
L
/ BEHAVIORAL STRATEGY
( THOMAS C. POWELL,1* DAN LOVALLO,2 and CRAIG R. FOX3
' 1 Said Business School, University of Oxford and St. Hugh's College, Oxford, U.K.
' 2 International Business, University of Sydney, Sydney, Australia
' 3 Anderson School of Management, University of California, Los Angeles, Los
'
Y
Behavior
and prac
unclear. I
proposea
the pape
Copyrigh
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1370 . . Powell D. Lovallo, and . . Fox
behavioral movements in economics and finance. designs, for example combining mathematical
modelling, simulation, behavioral experiments,
This is surprising, since strategy research has fewer
field interviews, and brain scans to gain multi-
inhibiting assumptions about decision rationality.
Nonetheless, behavioral economics and behavioral
ple perspectives on the same phenomenon. These
finance have led the way in generating new ideas
developments are nascent, but as strategic manage-
and research methods and in building intellec-
ment matures as a field, psychology offers a rich
tual bridges with psychology and neuroscience.
source of insights in theory and method.
We believe behavioral strategy can do the same Behavioral strategy has the luxury of building
in strategic management. on past research in cognition, behavioral deci-
Second, strategic management theory lacks ade- sion theory, organizational behavior, and strategy.
quate psychological grounding. Strategy theory hasBut much work remains to be done. Behavioral
converged on a view that the crucial problemstrategyin is a patchwork of theories and findings,
strategic management is firm heterogeneity - why and cognitive psychology has not captured the
firms adopt different strategies and structures, hearts and minds of strategy researchers. In busi-
why heterogeneity persists, and why competitors ness schools, strategy departments routinely hire
perform differently. Given these aims, existing economists and sociologists, but seldom psychol-
ogists. Indeed, despite a large volume of output,
theories are surprisingly parochial, explaining het-
erogeneity as Bainian market power protected experimental
by psychology has done little to address
monopoly barriers, Penrosian resource advantages the problems of strategy theory and practice. Many
protected by factor scarcity, and Schumpeterian strategy researchers regard the core unit of analy-
innovation driven by entrepreneurship and tech- sis in strategy as the firm or business unit rather
nology. These are the three pillars of strategic than the individual, and there is skepticism about
management theory.1 the scaling of psychological concepts to firms and
Do these theories really explain firm hetero- industries. Strategy practitioners are, if anything,
geneity? Recent performance shocks of compa- more skeptical than researchers, doubting whether
nies like Lehman Brothers, Bear Stearns, and BP, the field can go beyond cognitive biases to pro-
and failed mergers such as AOL/Time- Warner and duce useful frameworks that integrate psychology
HP/Compaq, evidently do not stem from monopoly and strategy practice.
rents, factor scarcity, or entrepreneurship. TheTo some degree, the problem comes down to
facts overwhelmingly implicate poor executive inadequate paradigm development in behavioral
strategy. The term 'behavioral strategy' is not
judgment, or larger macro-cultures of poor judg-
widely
ment. Conversely, sound executive judgment, and used and means different things to differ-
ent
contextual architectures that promote sound judg- people. Behavioral strategy does not have an
agreed statement of purpose, definition of bound-
ment, can enhance firm performance. Until strategy
theory builds stronger foundations in psychology, aries, conceptual framework, core research prob-
lems, methodological standards, communities of
it will struggle to explain the facts of firm perfor-
scholarship, or supporting institutions (such as an
mance. To achieve empirical fidelity, we believe
interest group in the Strategic Management Soci-
the field needs a robust subfield of behavioral
ety). Despite more than 30 years of research, the
strategy to serve as the fourth pillar of strategic
management theory. output as a whole lacks integration and is too
detached from central concerns in the field. A
Third, recent developments provide new oppor-
tunities for merging psychology and strategy.recent review of interdisciplinary influences on
Advances in cognitive neuroscience make itstrategic
pos- management included economics, soci-
ology,
sible to examine brain activity in strategic deci- and marketing, but not psychology (Nag,
Hambrick,
sions, and these technologies have spread quickly and Chen, 2007). Quoting Mintzberg,
Ahlstrand,
in economics, politics, marketing, and other social and Lampel's (1998: 172) review of
the
sciences. In experimental psychology, researchers 'cognitive school' of strategy: 'this school is
characterized
are increasingly turning to multimethod research more by its potential than by its con-
tributions. The central idea is valid. . .but strate-
gic management has yet to gain sufficiently from
1 This is not to minimize other key influences, such as institu-
tional theories (Meyer and Rowan, 1977; Oliver, 1997) and thecognitive psychology. Or, perhaps more accu-
bargaining view (Lippman and Rumelt, 2003). rately, cognitive psychology has yet to address
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1371
adequately the questions of prime interest to strate- to encourage a wide range of psychology per-
gic management.' spectives, and our definition of 'cognitive and
On the positive side, there are signs that strat- social psychology' is probably broader than most;
egy scholars recognize these problems. Symposia for example, we do not exclude nonexperimental
in behavioral strategy have become a mainstay in methods, and we believe that behavioral strategy is
recent Academy of Management meetings, sup- best supported by multiple methods and measures.
ported by the Academy's Management and Second, we assume that the crucial problem
Organizational Cognition Division and with in- in behavioral strategy is not a shortage of good
creasing submissions and attendance. Journal edi- research, but a lack of conceptual unity. The
tors report an increasing number of submissions field does not need more psychology research per
linking strategy and psychology, and more are se, but more integration of appropriate psychol-
being published. The SMJ Special Issue on the ogy into strategic management theory. We do not
Psychological Foundations of Strategic Manage- promote psychology for its own sake, but for
ment received an unprecedented number of sub- achieving two specific aims - bringing strategy
missions, and the range and quality of the papers theory closer to the empirical facts and integrating
were impressive. On the whole, there are reasons strategy research with strategy practice.
for optimism in behavioral strategy. With these caveats in mind, our definition em-
The remainder of this paper sketches, in broad braces topics in the existing core of behavioral
outline, a vision for the future of behavioral strat- strategy (such as decision biases and cognitive
egy. The next section defines the field, gives a schema), while encouraging innovations that go
typology of existing research, and proposes four beyond the status quo (which we will discuss).
core research problems in behavioral strategy. The Research methodologies may include experiments,
subsequent section presents an integrated concep- mathematical modelling, simulations, brain imag-
tual view of the field, and the concluding section ing, field studies, ethnography, and textual anal-
introduces the papers in the Special Issue. We do ysis, always with a preference for multimethod
not presume to have all the answers, but we are studies. We believe methodological diversity will
convinced that behavioral strategy has much to prove essential for improving our understanding of
contribute to strategic management and that schol- individual and social behavior in organizations.
ars can take positive steps to make it happen. Behavioral strategy encompasses a mind-
boggling diversity of topics and methods. As
shown in previous reviews, conceptual unity has
DEFINING BEHAVIORAL STRATEGY been hard to achieve and the domain of possi-
ble research is, to say the least, varied (see, for
example, Hodgkinson and Healey, 2008; Hodgkin-
We define behavioral strategy as follows:
son, 2008; Walsh, 1995; Eisenhardt and Zbaracki,
1992).
Behavioral strategy merges cognitiveOnand the other hand, the diversity of behavioral
social psychology with strategic management
strategy research mirrors, to a large degree, actual
theory and practice. Behavioral strategy aimsin the empirical domain. This is shown
diversity
to bring realistic assumptions about more
humanclearly in Table 1, which categorizes existing
cognition, emotions, and social behavior
research to
into three schools of thought, which we
the strategic management of organizations
call the Reductionist, Pluralist, and Contextualist
and, thereby, to enrich strategy theory,schools
empir-(see Tetlock, 1990, 2000).
ical research, and real-world practice. Reductionist research relies on positivist, real-
ist, and objectivist philosophies of science and
This definition is based on two assumptions.favors quantitative hypothesis testing using meth-
First, we assume that behavioral strategy ods suchneeds
as mathematical modelling, simulation,
theoretical grounding in cognitive andand social psy-
laboratory decision experiments. The Reduc-
chology. The definition allows many research top- is influenced by theoretical work
tionist school
ics and methods, but we intend it to exclude in behavioral decision research (Edwards, 1954,
work that lacks rigorous theoretical grounding 1961; Tversky and Kahneman, 1974; Kahneman
in psychology. At the same time, we intend it and Tversky, 1979; Nisbett and Ross, 1980) and
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1372 . . Powell D. Lovallo, and . R. Fox
Copyright 201 1 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (201 1)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1373
Table 1. (Continued)
capacity,
has made important contributions Fiol (1991) on
in strategic organization culture and
deci-
sion making, cognitive biases, identity,
risk perception,
Terry and Callan (1998) on ingroup bias
and intertemporal choice. Examples of the
and merger, Reduc- Hart, and Schendel
and Fiegenbaum,
tionist influence in strategy include Duhaime and groups.
(1996) on strategic reference
Schwenk (1985) on cognitive errors in acquisi-
The Contextualist school is grounded in phe-
tion and divestment, Camerer nomenological,
and Lovallo (1999) and critical philoso-
constructivist,
on overconfidence and market phies of science.
entry, March Contextualist
and research is
Shapira (1987) on managerial riskconcerned
preferences, and
with management perception, sense-
Bromiley (2009) on prospect theory and resource
making, cognitive schema, language, meaning, and
allocation. Much of the recent enacted
progressenvironments. The school is 'contextual'
in behav-
ioral game theory and neuroeconomics derives
in emphasizing the primacy of context - claiming,
from Reductionist assumptions for(Camerer, 2003;
example, that the difference between a sea-
Camerer, Loewenstein, and Prelec, 2005). in the boardroom and a subject
soned executive
Pluralist research is so named because it draws playing an ultimatum game in a lab experiment is
on multiple theoretical traditions and uses meth- ontologically large. As such, Contextualists con-
ods ranging from case studies and simulations toduct empirical work 'in context,' favoring qualita-
large sample field research. The Pluralist school tive and interpretive methods such as ethnography
is grounded in positivist, nominalist, pragmatist,and textual analysis and rejecting positivism and
or evolutionary philosophies of science. Pluralist quantitative hypothesis testing. In the Contextu-
research is less concerned with individual decisionalist view, subjective beliefs, shared ideologies,
making than with the overall decision environ- and cognitive frames matter more than explicit
ment of the firm. Combining behavioral decisionex ante decisions, which seldom correspond with
theory with political theory (March, 1962; Wil- what people or firms actually do. Examples of the
davsky, 1972), organization theory (March and Contextualist influence in strategy include Bougon,
Simon, 1958), and social cognition psychologyWeick, and Binkhorst (1977) on cognition in a jazz
(Fiske and Taylor, 2008; Bandura, 1977; Fes- orchestra, Brunsson (1982) on ideology and action
tinger, 1954), Pluralist research studies the con- rationality, Starbuck and Milliken (1988a) on the
sequences of bounded rationality, group conflict, Challenger disaster, and Hodgkinson, Maule, and
learning, and executive decision making in organi- Bown (2004) on cognitive mapping.
zations. Examples of Pluralist influence in strategy The three schools give only a rough picture
include Cohen and Levinthal (1990) on absorptive of research in behavioral strategy. The schools
Copyright 201 1 John Wiley & Sons, Ltd. Sra. Mgmt. 7., 32: 1369-1386 (201 1)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1374 . . Powell, D. Lovallo, and . R. Fox
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1375
behavioral strategy, the whole question is how group polarization (Isenberg, 1986), common
particular forms of behavior arise in and among information sampling bias (Stasser and Titus,
organizations. If we do not show the mechanism, 1985), social facilitation (Zajonc, 1965), social
we do not explain the phenomenon. loafing (Latane, Williams, and Harkins, 1979),
The problem of aggregation is not unique to and transactive memory systems, through which
behavioral strategy. Behavioral economists since groups collectively encode, store, and retrieve
at least Schelling (1978) have studied relation- knowledge (Wegner, 1987).
ships between individual choices and collective The problem of scaling has also been addressed
outcomes. Fehr and Tyran (2005) argued that the in management science and organization theory.
mode of aggregation depends on market con- From Reductionist assumptions, Marschak (1955)
ditions - in particular, whether 'strategic substi- proposed a mathematical model of team pro-
tutability' or 'strategic complementarity' determine duction. From Contextualist assumptions, Harris
aggregate outcomes. Substitutability obtains when (1994) examined how organizations, groups, and
the presence of a few rational decision makers cultures are represented in the cognitive schema of
is enough to produce collective rationality; com- individuals. From a Pluralist perspective, Freeman
plementarity obtains when a small number of (1999) surveyed aggregation issues arising from
irrational decision makers can skew collective out- transaction cost and agency theories. Freeman's
comes. For example, Firm A' s decision to increase (1999: 175) conclusions about organizational psy-
output may influence Firm not to build a newchology also apply to behavioral strategy: 'if
plant (substitutability), whereas Firm A' s decision organizational psychology is simply psychology
to cut price may cause Firm to cut price evenapplied to people who happen to be located in
more (complementarity). As Fehr and Tyran (2005: organizations, then it is hard to see why a sepa-
43) note, 'there is no general reason to believe that rate field is needed. . .(A) way out of the box is to
markets automatically render individual decisionsposit a true social psychology of organizations: a
more rational over time.' theory of aggregation that explains how individu-
In behavioral finance, researchers have studied als combine their behaviors to produce collective
how noise traders affect market outcomes. In the outcomes.'
model proposed by DeLong et al. (1991), it is pos- Freeman (1999) did not propose a 'way out
sible for irrational traders to earn higher returns of the box,' but he recommended as a starting
than rational investors and dominate the market point the organization theories of Cyert, March,
in the long run. Barber, Heath, and Odean (2003) Simon, and colleagues at Carnegie. The behav-
compared the investment strategies of individualsioral theory of the firm views organizations as
and groups (stock clubs). They found that groups, comprised of differentiated subunits with conflict-
ing goals, resources, and time horizons (Cyert
to a greater extent than individuals, try to justify
their stock choices with defensible reasons. Groupsand March, 1963). In the Carnegie view, orga-
do this even when their choices contradict sound nizational strategy is largely a political process,
investment policy - for example, justifying popu-involving coalition building, bargaining, and con-
lar growth stocks over lesser-known value stocks.
flict resolution among representatives of differen-
tiated subunits (see also Lawrence and Lorsch,
In this context, cognitive scaling stems less from
'complementarity' (increasing returns to individ-1967; Bower, 1970; Miles and Snow, 1978). The
ual irrationality) than from the social psychology
CEO must orchestrate an organization-wide polit-
of group membership: 'in situations where peopleical process, and subunit managers face what
must exchange reasons to convince others. . .theBlake (1959) called the 'crisis of statesmanship,'
process we document may yield alternatives that in which they try to reconcile firm-level priorities
have notable disadvantages but that happen towith personal goals and political status with peers
come attached to a good reason.' (DeLong et al, and constituents.
1991: 1651). We agree with Freeman that the Carnegie model
In social psychology and behavioral decision
offers a solid foundation for linking individual
theory, researchers have dealt in various ways
psychology with organizational strategy (see also
with the aggregation of mental processes, some
Bromiley, 2005; Argote and Greve, 2007). The
of which offer insights to behavioral strategy.
model's emphasis on bargaining and political pro-
cesses allows researchers to deploy a range of
This includes research on groupthink (Janis, 1972),
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1376 . . Powell D. Lovallo, and . R. Fox
ideas in social cognition and group identification, researchers from strategy, behavioral finance,
including self-categorization, conformity, obedi- and behavioral decision theory/economics to
ence, status, reputation, accountability, trust, social examine the issue of market efficiency and
learning, and reference groups (Fiske and Tay- strategy. The idea is not to review research
lor, 2008; Bandura, 1977; Tajfel, 1978; Turner, on biases and irrationality. Rather, the ambi-
1975; Festinger, 1954). The psychology of iden- tion is to flesh out a research agenda for
tification, and research on social identity in par- 'behavioral strategy." (Winter et al, 2008)
ticular, offers many avenues for bridging the gap
between individual cognition and organizational The proposal then identified five research que
strategy (Haslam, 2004; Ashforth and Mael, 1989; tions in behavioral strategy:
Hogg and Terry, 2000; Dutton, Dukerich, and Har-
quail, 1994; Huber and Lewis, 2010). For exam- When and why are resources and input facto
ple, Terry and Callan (1998) used social identity undervalued?
theory to examine out-group bias in a hospital When and why can arbitrage opportunities exist
merger; Rumelt (1995) proposed a model linkingin factor and product markets?
psychology and organizational inertia through sub- What are the limits to arbitrage in factor and
unit conflict resolution; and Livengood and Regerproduct markets?
(2010) combined identity theory with awareness- What are the implications for strategy?
motivation-capability (AMC) theory to explore Is a normative theory of strategy possible?
competitive interactions (see also Huy, 2011).
The scaling problem is far from solved, and it is These questions do not, in our opinion, consti-
often improperly framed. As Freeman (1999) sug- tute the whole of behavioral strategy. However,
gested, the question is not about scaling or aggre-they raise important issues in strategic manage-
gation per se, which assume a kind of adding up ment research, some of which can be addressed
of individual cognition. Rather the question is howthrough a closer alignment of psychology and
we integrate individual and collective psychology strategy.
in organizations to produce a social psychology Denrell, Fang, and Winter (2003) argue that
of behavioral strategy. The behavioral theory strategy
of theories rely too much on theories of
the firm is a good starting point, and Reduction- market efficiency and equilibrium. If market par-
ist and Contextualist approaches (including social ticipants acted optimally on information about
neuroscience) can add texture and insight to the resources and market positions, firms could not
Carnegie view. To deal effectively with the prob- improve performance by following systematic
lem, the field needs contributions from all three rules. In strategy theory, there are 'no rules for
schools of behavioral strategy. riches;' if such a rule existed, other firms would
follow it and compete away its value (Barney,
1986). However, managers do take actions that
WHAT ARE THE PSYCHOLOGICAL improve firm performance, and not all of these
UNDERPINNINGS OF STRATEGIC actions can be ascribed to luck. According to Den-
MANAGEMENT THEORY? rell et al. (2003: 978), 'the discovery of a valuable
strategic opportunity is often a matter of 'serendip-
In 2008, a proposal for an Academy ofity' Manage-
in the strict sense - not just luck, but effort and
ment symposium on behavioral strategyluck joined by alertness and flexibility. To appre-
began:
ciate these points it is necessary to break out of
'Strategy is concerned with finding the equilibrium mindset that dominates so much
profit
of economic theory.'
opportunities. In teaching as well as practice,
It is possible that firms differ from each other
the implicit assumption is that not all oppor-
for precisely
tunities have been exploited. Rather, there is the reasons emphasized in strategy
money left on the table. We argue that theory, ansuch as resource scarcity, mobility bar-
riers, causal ambiguity, and uncertain imitabil-
appropriate theoretical foundation for strat-
egy should start with the assumption ity.that
However, this assumes market participants
there are arbitrage opportunities. . .Theare
pur-paying attention to markets and acting on
what they know. An alternative hypothesis is that
pose of this symposium is to bring together
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1377
firms generally fail to capture their opportunities, fully incorporate psychology, the empirical facts
solve their problems, or imitate imitable resources will continue to frustrate our attempts to explain
(Powell, 2004). This could happen, for example, them, and researchers will find it impossible to
if decision makers are subject to self-confirming integrate theory with strategy practice.
beliefs (Ryall, 2003), overoptimism in strategic
forecasting (Lovallo and Kahneman, 2003), com-
petitive blind spots (Zajac and Bazerman, 1991), CAN BEHAVIORAL STRATEGY
self-interested causal attributions (Powell, Lovallo, EXPLAIN COMPLEX EXECUTIVE
and Caringal, 2006), disordered learning processes JUDGMENTS?
(Denrell, 2008), institutional conformity (Abra-
hamson, 1991), unwillingness to imitate (Jonsson Research in behavioral decision theory (BDT)
and Regner, 2009), or perceptual filtering (Star- shows that individuals lack the cognitive capac-
buck and Milliken, 1988b). Suboptimal behavior ity to make fully informed and unbiased decisions
could also emerge from emotions such as envy, in complex environments (Kahneman, Slovic, and
prejudice, anger, hubris, and impulsivity (Elfen- Tversky, 1982; Payne, Bettman, and Johnson,
bein, 2007; Rafaeli and Sutton 1989; Postel and 1988). To cope with complex judgments and deci-
Rumelt, 1992), which can jeopardize or improve sions, people use simplifying heuristics that are
performance (Staw and Barsade, 1993; Huy, 1999; prone to systematic biases. Decision makers do not
Pfeffer and Sutton, 1999; Howard, 1993). Even maximize the subjective expected utility of total
large firms might behave erratically due to poor wealth, but focus on deviations from cognitive ref-
executive judgment, as we observe. Under any erence points. BDT has found many applications
such conditions, some market participants would in the social sciences, including strategic manage-
find opportunities to adopt strategies that improve ment (Bazerman and Moore, 2008).
firm performance. As Bromiley and Papenhausen BDT has not yet realized its full potential in
(2003: 432) point out, 'the entire 'no rules for strategic management (Hodgkinson and Sparrow,
riches' story. . .collapses if we have rules that could 2002). It does not link seamlessly with strategy
improve performance. This would arise when some theory and it has not made large impacts on
firms either do not know the rules exist or do not strategy practice. The decision context of strate-
act on them.' gic management involves organizationally situ-
Studies show that actual distributions of firm ated managers, widespread uncertainty, and poorly
profitability are consistent with generating pro- defined problems with unknowable social and eco-
cesses that contain a great deal of randomness nomic consequences. In the circumstances, we
(Levinthal, 1991; Powell, 2003; Denrell, 2004), believe strategy research should increase its
and some forms of competitive behavior derive emphasis on executive judgment in the actual con-
from the inherent uncertainty or randomness of ditions of high-stakes, complex problem solving in
markets (Bertrand and Mullainathan, 2001; Lipp- organizations.
man and Rumelt, 1982). For example, corporate Management scholars have always recognized
success induces self-serving attributions, and exec- the complexity of strategic problem solving in
utives are likely to attribute success to their own organizations. Peter Drucker (1974) viewed execu-
abilities, even when success is due to excessive tive work as a practice, not unlike problem solving
risk taking or luck (Salancik and Meindl, 1984). If in medicine, architecture, military affairs, and for-
executive decisions are informed by false or over- eign policy. He wrote that 'decision making is not
confident attributions, some market participants a mechanical job. It is risk-taking and a challenge
may find it possible to exploit market opportunities to judgment. The 'right answer' (which usually
(Denrell and Fang, 2010). cannot be found anyway) is not central. Central
We agree with those who argue that strate- is understanding of the problem. Decision making,
gic management theory needs deep reformulation further, is not an intellectual exercise. It mobilizes
along behavioral lines. The assumption that firm the vision, energies and resources of the organiza-
heterogeneity stems from economic barriers does tion for effective action' (Drucker, 1974: 480).
not align with what we know about human cog- Herbert Simon (1987) distinguished two kinds
nition, emotions, learning, social interactions, and of organizational decisions: logical and judgmen-
institutions. Until theories of firm heterogeneity tal. Simon cited Chester Barnard, who defined
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1378 . . Powell D. Lovallo, and R. Fox
Copyright 201 1 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (201 1)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1379
encourage people to seek alternative points of view market entrant. To minimize decision biases, the
(see also Johnson et /., 2011). The authors argue authors recommend that firms link their strategic
that ecological 'nudges,' supplemented by rewards decisions with known decision biases and create
and incentives, offer a workable and human- choice architectures for dealing with the biases
friendly alternative to explicit decision aids. they actually face. For example, all large phar-
Arkes (1991) distinguished three types of maceutical firms engage in basic research and
errors - strategy-based, association-based, and are repeatedly susceptible to escalation bias and
psycho-physically-based - and Larrick (2004) the politics of internal resource allocation. Most
argued that remediation methods should fit the firms link R&D investments to the annual plan-
type of error. Heath, Larrick, and Klayman (1998) ning cycle, in which each business line makes
divided organizational repairs into two categories: a case for resources. However, one leading firm
motivational repairs, which increase the energy addressed escalation bias proactively by forming
and enthusiasm with which people work; and a detached 'divestment team' that scans internal
cognitive repairs, which prevent mental errors projects year-round for possible retirement. Can
or improve decision processes. For example, as such mechanisms lead to better resource alloca-
motivational repairs, managers could increase the tions and, ultimately, to higher returns? Given
decision autonomy of project teams or redesign the difficulties of repairing individual biases, firm-
common areas to enhance 'psychological capital' level solutions may offer the best way forward.
(Luthans, Youssef, and Avolio, 2007); as cognitive The psychological design of organizations is
repairs, managers could address overoptimism in a promising area for strategy research. Experi-
forecasting by investing in training and databases ence suggests that judgmental errors stem from
for case-based decision making. a combination of cognitive errors and the con-
Denrell and March (2001) argued that many text of choice. On the whole, individual cognitive
errors in learning and inference derive from dys- errors have received more attention than the psy-
chological architecture of the firm, even though
functional learning environments and would exist
even if all decision makers were rational. For
the latter now appears more conducive to posi-
example, consider an executive team choosing tive
howintervention (see Kahneman and Klein, 2009).
to enter a foreign market. Suppose the firm We hasbelieve that future research should give equal
previous experience in market entry by jointtime
ven- to the psychological architectures of collec-
ture once (a failure) and by acquisition fourtive choice.
times
(two successes and two failures). By the structure
of the selection process, the team has asymmetric
information - i.e., more information about PUTTING
acqui- IT ALL TOGETHER
sitions than joint ventures. Hence, it has learned
the conditions under which acquisitions succeed
As a nascent field of study, behavioral strate
and fail and is likely to choose a form of faces
acqui-two opposing threats: the threat of irrel
sition that succeeded in the past. Since thevance
team by focusing too narrowly on one mo
has minimal information about joint ventures, (such
and as BDT or cognitive schema); and the thr
all of it is bad, it eliminates this option (the
of 'hot
fragmentation by trying to appease every poin
stove effect'). This is true even if joint venture is
of view in strategy and psychology. In our op
the optimal choice but requires competence ion, behavioral strategy needs to follow a mid
build-
ing by repeat experience. This is not cognitive bias recognizing the diversity of the tasks it fac
path,
but an anomaly in the adaptive learning process.while focusing on a small number of core pro
Rational selection demands the search for success-
lems. Behavioral strategy may converge to on
ful options and avoidance of failed options. As paradigm in a future generation (though we th
a side consequence, it produces undersampling ofthis is unlikely); in the meantime, behavioral stra
failure (see also Markle, 2011). egy needs to find unity within diversity.
Lovallo and Sibony (2010) distinguished be- The good news is that the scope of behavior
tween recurrent strategic decisions, such as re-strategy is not infinite. The field may have multip
source allocations in R&D projects, and large one-paradigms, but it does not have 40 or 50 of the
off decisions for which the firm lacks established Figure 1 depicts the conceptual model we have
choice processes, such as responding to a new mind.
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. ., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1380 . . Powell D. Lovallo, and . R. Fox
Copyright 201 1 John Wiley & Sons, Ltd. Strat. Mgmt. ., 32: 1369-1386 (201 1)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1381
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1382 . . Powell, D. Lovallo, and R. Fox
We aimed to use three reviewers on each paper, entrepreneurial firms. The question concerned what
and we recognize that the volume of papers placed organizations learn and how they do it. The authors
unusual demands on our colleagues in behavioral argue from the data that what organizations learn
strategy. Finally, we are grateful for the sage are portfolios of heuristics, and that these heuris-
advice and support of Rich Bettis, who served tics as
follow a specific developmental sequence of
our SMJ advising editor. Rich's availability events. and The authors identify the heuristics and
encouragement were much appreciated. sequences, and link them to collective learning,
In the end, we accepted the nine papers that memory and capability development.
appear in this volume. We believe each of them Bardolet, Fox, and Lovallo (2011) combine field
makes a distinctive contribution to behavioral strat- evidence with experimental methods to examine
egy. The papers cover diverse topics and meth- the cognitive biases of corporate resource alloca-
ods, but also demonstrate the potential for a more tion. The authors find that diversified firms show
unified field of behavioral strategy. Some of the a persistent bias toward allocating capital equally
papers use multiple methods, others point the way across business units, no matter how the units
to new topics and methods, and each of them are partitioned - in effect, cross-subsidizing low-
addresses one or more of the core problems in performing units with the profits of high perform-
behavioral strategy. ers. By eliminating noncognitive explanations, the
The paper by Huy (2011) uses social identity authors reveal the psychological foundations of a
theory to show how individual emotions scale to critical source of corporate inefficiency.
groups and organizations and shows the conse- Two papers are linked to recent developments
quences of collective emotions for strategy in cognitive neuroscience. Powell (2011) evaluates
implementation. The author's field study in a large the prospects of behavioral neuroscience for con-
Canadian service firm illustrates how a psycholog- tributing to behavioral strategy. Powell identifies
ical mechanism such as identification can bridge the potential contributions and limitations of neu-
the gap between individual psychology and orga- roscience and shows how research in neurostrategy
nizational strategy. may lead to useful interdisciplinary collaborations
Dysfunctional learning regimes can lead to firm and innovations in theory development, construct
inefficiency even when the firm and its employ- validation, measurement, and strategy practice.
ees do not commit cognitive errors. Markle (201 1) Hodgkinson and Healey (2011) employ a model
uses a simulation method to study this prob- in social cognitive neuroscience - controlled vs.
lem in the context of employees' responses to automatic processing - to challenge the assump-
wage changes. The paper shows that the exis- tions and conclusions of dynamic capability the-
tence of employees who do not respond to wage ory. The authors argue that emotion and intuition
hikes causes firms to underestimate the output of play essential roles in building individual and col-
high-effort employees and, hence, to set ineffi- lective capabilities and suggest ways of aligning
cient wages. This model has many applications in strategy theory with models of capability develop-
strategic management and represents a new wave ment in cognitive neuroscience.
of research linking individual and organizational We conclude the Special Issue with a com-
learning. mentary by Daniel Levinthal (2011) entitled 'A
Hu, Blettner, and Bettis (2011) combine ref- behavioral approach to strategy - what's the alter-
erence point theory with the behavioral theory native?' He argues that sharp distinctions between
of the firm to produce a two reference point rational and nonrational strategy are unhelpful. The
model of adaptive aspirations. Using simulations, world is neither one nor the other, and what really
the authors examine three strategies for adjusting matters in strategy is whether models help peo-
aspirations - conservative, ambitious, and satisfic- ple solve the problems they face as scholars and
ing - and find that the latter yields better out- strategy practitioners. In Levinthal's (2011) words,
comes. This paper shows the benefits of combining 'the choice is not between whether we should act
Reductionist and Pluralist approaches to improve in a God-like manner or like mortals. We are mor-
our understanding of long-standing problems in tals.' Ultimately, Levinthal argues, we need models
strategic management. that solve the problems faced by thinking and feel-
Bingham and Eisenhardt (2011) conducted a ing human beings, and this requires a robust and
field study of organizational learning in six dynamic field of behavioral strategy.
Copyright 201 1 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1383
On that point we agree, and we hope you enjoy Bromiley P, Papenhausen C. 2003. Assumptions of
the Special Issue. rationality and equilibrium in strategy research.
Strategic Organization 1(4): 413-437.
Brunsson N. 1982. The irrationality of action and action
rationality: decisions, ideologies, and organizational
REFERENCES action. Journal of Management Studies 19(1): 29-44.
CamererCF. 2003. Behavioral Game Theory: Experi-
ments in Strategic Interaction. Princeton University
Abrahamson E. 1991. Managerial fads and fashion:
Press: the
Princeton, NJ.
diffusion and rejection of innovations. Academy ofLoewenstein GF, Prelec D. 2005. Neuroe-
Camerer CF,
Management Review 16: 586-612. conomics: how neuroscience can inform economics.
Argote L, Greve HR. 2007. A Behavioral Theory of
Journal of Economic Literature 43: 9-64.
the Firm - 40 years and counting: introduction
Camererand
CF, Lovallo D. 1999. Overconfidence and
impact. Organization Science 18(3): 337-349.
excess entry: an experimental approach. American
Arkes HR. 1991. The costs and benefits of judgment
Economic Review 89(1): 306-318.
errors: implications for debiasing. Psychological
Bulletin 110: 486-498. Cohen WM, Levinthal DA. 1990. Absorptive capacity:
a new perspective on organizational learning.
Ashforth BE, Mael F. 1989. Social identity theory and
Administrative Science Quarterly 35: 128-152.
the organization. Academy of Management Review 14:
20-39. Cyert RM, March JG. 1963. A Behavioral Theory of the
Firm. Prentice-Hall: Englewood Cliffs, NJ.
Bandura A. 1977. Social Learning Theory. Prentice-Hall:
Englewood Cliffs, NJ.
DeLong JB, Shleifer A, Summers LH, Waldmann RJ.
1991. The survival of noise traders in financial
Barber BM, Heath C, Odean T. 2003. Good reasons
markets. The Journal of Business 64(1): 1-19.
sell: reason-based choice among group and individual
Denrell J. 2004. Random walks and sustained competitive
investors in the stock market. Management Science
49(12): 1636-1652. advantage. Management Science 50: 922-934.
BardoletD, Fox CR, Lovallo DA. 2011. Corporate Denrell J. 2008. Superstitious behavior as a byprod-
capital allocation: a behavioral perspective. Strategic uct of intelligent adaptation. In The Oxford Hand-
Management Journal 32(13). book of Organizational Decision Making, Star-
Barnard CI. 1938. The Functions of the Executive. buck WH, Hodgkinson G (eds). Oxford University
Press: Oxford, U.K.: 271-286.
Harvard University Press: Cambridge, MA.
Barney JB. 1986. Strategic factor markets: expectations, Denrell J, Fang 2010. Predicting the next big thing:
luck, and business strategy. Management Science success as a signal of poor judgment. Management
32(10): 1231-1241. Science 56(10): 1653-1667.
Bazerman MH, Moore D. 2008. Judgment in Managerial Denrell J, Fang C, Winter SG. 2003. The economics of
Decision Making (7th edn). Wiley & Sons: Hoboken, strategic opportunity. Strategic Management Journal
NJ. 24(10): 977-990.
Bendersky C, McGinn KL. 2010. Open to negotiation: Denrell J, March JG. 2001. Adaptation as information
phenomenological assumptions and knowledge dis- restriction: the hot stove effect. Organization Science
semination. Organization Science 21(3): 781-797. 12(5): 523-538.
Bertrand M, MuUainathan S. 2001. Are CEOs rewarded Donaldson L. 2010. The Meta-Analytic Organization:
for luck? The ones without principals are. Quarterly Introducing Statistico-Organizational Theory. ME
Journal of Economics 116: 901-932. Sharpe: New York.
Bingham CB, Eisenhardt KM. 2011. Rational heuristics: Drucker PF. 1974. Management: Tasks, Responsibilities,
the 'simple rules' that strategists learn from process Practices. Harper & Row: New York.
experience. Strategic Management Journal 32(13). Duhaime IM, Schwenk CR. 1985. Conjectures on
Blake RR. 1959. Psychology and the crisis of statesman- cognitive simplification in acquisition and divestment
ship. American Psychologist 14(2): 87-94. decision making. Academy of Management Review
Bollaert H, Petit V. 2010. Beyond the dark side 10(2): 287-295.
of executive psychology: current research and Dutton JE, Dukerich JM, Harquail CV. 1994. Organiza-
new directions. European Management Journal 28: tional images and member identification. Administra-
362-376. tive Science Ouarterh 392: 239-263.
Bougon M, Weick KE, Binkhorst D. 1977. Cognition Edwards W. 1954. The theory of decision-making.
in organizations: an analysis of the Utrecht Jazz Psychological Bulletin 51(4): 380-417.
Orchestra. Administrative Science QuarterlyEdwards
22(4): W. 1961. Behavioral decision theory. Annual
606-639. Review of Psychology 12: 473-498.
Bower JL. 1970. Managing the Resource Allocation Eisenhardt KM, Zbaracki MJ. 1992. Strategic decision
Process. Harvard Business School Press: Boston, MA.making. Strategic Management Journal Winter
Special Issue 13: 17-37.
Bromiley P. 2005. The Behavioral Foundations of Strate-
gic Management . Blackwell Publishing: Maiden, Elfenbein
MA. HA. 2007. Emotion in organizations: a review
Bromiley P. 2009. A prospect theory model of resourceand theoretical integration. Academy of Management
allocation. Decision Analysis 6(3): 124-138. Annals 1(1): 315-386.
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1384 . . Powell D. Lovallo, and . R. Fox
Elster J. 1982. The case for methodological individual-a comparison of alternative elicitation procedures.
ism. Theory and Society 11(4): 453-482. Organizational Research Methods 7: 3-26.
Fehr E, Tyran JR. 2005. Individual irrationality andHodgkinson GP, Sparrow PR. 2002. The Competent
aggregate outcomes. Journal of Economic Perspec- Organization: A Psychological Analysis of the
tives 19(4): 43-66. Strategic Management Process. Open University
Festinger L. 1954. A theory of social comparison Press: Buckingham, U.K.
processes. Human Relations 7: 1 17-140. Hogg MA, Terry DJ. 2000. Social identity and self-
Fiegenbaum A, Hart S, Schendel D. 1996. Strategiccategorization processes in organizational contexts.
reference point theory. Strategic Management JournalAcademy of Management Review 25(1): 121-140.
17(3): 219-235. Howard N. 1993. The role of emotions in multi-
Fiol M. 1991. Managing culture as a competitive organizational decision making. Journal of the
resource: an identity-based view of sustainable Operational Research Society 44(6): 613-623.
competitive advantage. Journal of Management 17: Hu S, Blettner D, Bettis RA. 2011. Adaptive aspirations:
191-211.
performance consequences of risk preferences at
Fiske ST, Taylor SE. 2008. Social Cognition: From extremes and alternative reference groups. Strategic
Brains to Culture. McGraw-Hill: New York. Management Journal 32(13).
Freeman J. 1999. Efficiency and rationality in orga- Huber GP, Lewis K. 2010. Cross-understanding: implica-
nizations. Administrative Science Quarterly 44(1): tions for group cognition and performance. Academy
163-175.
of Management Review 35(1): 6-26.
Gavetti G, Levinthal DA, Ocasio W. 2007. Neo- Huy QN. 1999. Emotional capability, emotional intelli-
Carnegie: the Carnegie School's past, present, and gence, and radical change. Academy of Management
reconstructing for the future. Organization Science 18: Review 24(2): 325-345.
523-536.
Huy QN. 201 1. How middle managers' group-focus emo-
Gawande A. 2009. The Checklist Manifesto: How to Getand social identities influence strategy implemen-
tions
Things Right. Metropolitan Books: New York. tation. Strategic Management Journal 32(13).
Greve HR. 1998. Performance, aspirations, and risky
Isenberg D. 1986. Group polarization: a critical review
organizational change. Administrative Science Quar- and meta-analysis. Journal of Personality and Social
terly 44: 58-86. Psychology 50: 1141-1151.
Hambrick DC, Mason PA. 1984. Upper echelons: the Janis IL. 1972. Victims of G roupthink . Houghton-Mirrlin:
organization as a reflection of its top managers. Boston, MA.
Academy of Management Review 9(2): 193-206. Janis IL, Mann L. 1977. Decision Making: A Psycholog-
Harris SG. 1994. Organizational culture and individual
ical Analysis of Conflict, Choice, and Commitment.
sensemaking: a schema-based perspective. Organiza- Free Press: New York.
tion Science 5(3): 309-321.
Johnson EJ, Shu S, Dellaert BGC, Fox CR, Gold-
Haslam SA. 2004. Psychology in Organizations: The
stein DG, Hubl G, Larrick RP, Peters E, Payne JW,
Social Identity Approach (2nd edn). Sage: Thousand
Schkade D, Wansink B. 2011. Beyond nudges: tools
Oaks, CA.
of a choice architecture. Unpublished manuscript,
Heath C, Larrick RP, Klayman J. 1998. Cognitive
Columbia University.
repairs: how organizations compensate for the
Jonsson S, Rgner P. 2009. Normative barriers to
shortcomings of individual learners. Research in
imitation: social complexity of core competences in a
Organizational Behavior 20: 1-37.
mutual fund industry. Strategic Management Journal
Henrich J, Boyd R, Bowles S, Camerer C, Fehr h,
30(5): 517-536.
Gintis H (eds). 2004. Foundations of Human Sociality:
Kahneman D, Klein G. 2009. Conditions for intuitive
Economic Experiments and Ethnographic Evidence
from Fifteen Small-Scale Societies. Oxford University expertise: a failure to disagree. American Psychologist
Press: Oxford, U.K. 64(6): 515-526.
Kahneman D, Lovallo D. 1993. Timid choices and bold
Hodgkinson GP. 2008. Strategic management. In Intro-
duction to Work and Organizational Psychology: A forecasts: a cognitive perspective on risk-taking.
Management Science 39( 1 ) : 17-31.
European Perspective (2nd edn), Chmiel N (ed).
Blackwell: Oxford, U.K.; 329-350. Kahneman D, Slovic P, Tversky A. 1982. Judgment
Hodgkinson GP, Healey MP. 2008. Cognition in organi- Under Uncertainty: Heuristics and Biases. Cambridge
zations. Annual Review of Psychology 59: 387-417. University Press: New York.
Hodgkinson GP, Healey MP. 2011. Psychological foun- Kahneman D, Tversky A. 1979. Prospect theory: an
dations of dynamic capabilities: reflexion and reflec- analysis of decisions under risk. Econometrica 47:
313-327.
tion in strategic management. Strategic Management
Journal 32(13). Kets de Vries MFR, Miller D. 1984. Neurotic style
Hodgkinson GP, Langan-Fox J, Sadler-Smith E. 2008. and organizational pathology. Strategic Management
Intuition: a fundamental bridging construct in the Journal 5(1): 35-55.
behavioral sciences. British Journal of Psychology 99: Klein G. 1998. Sources of Power: How People Make
1-27. Decisions. MIT Press: Cambridge, MA.
Hodgkinson GP, Maule AJ, Bown NJ. 2004. Lant T, Baum J. 1995. Cognitive sources of socially
Causal
cognitive mapping in the organizational strategy field: constructed competitive groups: examples from the
Copyright 201 1 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
Special Issue Introduction 1385
Manhattan hotel industry. In The Institutional Con- NagR, HambrickDC, Chen MJ. 2007. What is
struction of Organizations, Scott WR, Christensen S strategic management, really? Inductive derivation
(eds). Sage: Thousand Oaks, CA; 15-38. of a consensus definition of the field. Strategic
Larrick RP. 2004. Debiasing. In Blackwell Handbook Management Journal 28(9): 935-955.
of Judgment and Decision Making, Koehler DJ, Nickerson J, Zenger T. 2008. Envy, comparison costs,
Harvey N (eds). Blackwell: Maiden, MA; 316-337. and the economic theory of the firm. Strategic
Latane B, Williams K, Harkins S. 1979. Many hands Management Journal 29(13): 1371-1394.
make light the work: the causes and consequences Nisbett RE, Ross L. 1980. Human Inference: Strategies
of social loafing. Journal of Personality and Social and Shortcomings of Social Judgment. Prentice-Hall:
Psychology 37: 822-832. Englewood Cliffs, NJ.
Lawrence PR, Lorsch JW. 1967. Differentiation and Ocasio W. 1997. Towards an attention-based view of the
integration in complex organizations. Administrative firm. Strategic Management Journal, Summer Special
Science Quarterly 12: 1-30. Issue 18: 187-206.
Levinthal DA. 1991. Random walks and organizational Oliver 1997. Sustainable competitive advantage:
mortality. Administrative Science Quarterly 36: combining institutional and resource-based views.
397-420. Strategic Management Journal 18(9): 697-713.
Levinthal DA. 2011. A behavioral approach to strat- Ostrom E. 1997. A behavioral approach to the rational
egy - what's the alternative. Strategic Management choice theory of collective action. American Political
Journal 32(13). Science Review 92(1): 1-22.
Levinthal DA, March JG. 1993. The myopia of learning.Payne JW, Bettman JR, Johnson EJ. 1988. Adaptive
Strategic Management Journal, Winter Special Issue strategy selection in decision making. Journal of
14:95-112. Experimental Psychology: Learning, Memory, and
Lippman SA, Rumelt RP. 1982. Uncertain mutability: Cognition
an 14: 534-552.
analysis of interfirm differences in efficiency Pfeffer
under J, Sutton RI. 1999. The Knowing-Doing Gap:
competition. Bell Journal of Economics 13: 418-438. How Smart Companies Turn Knowledge into Action.
Lippman SA, Rumelt RP. 2003. A bargaining perspective Harvard Business School Press: Boston, MA.
Porac JF, Thomas H. 1990. Taxonomie mental models
on resource advantage. Strategic Management Journal
24(11): 1069-1086. in competitor definition. Academy of Management
Livengood RS, Reger RK. 2010. That's our turf! Identity Review 15: 224-240.
domains and competitive dynamics. Academy Postel of S, Rumelt RP. 1992. Incentives, routines, and
Management Review 35(1): 48-66. self-command. Industrial and Corporate Change 1(3):
Lovallo D, Kahneman D. 2003. Delusions of success: 397-425.
how optimism undermines executives' decisions.Powell TC. 2003. Varieties of competitive parity.
Harvard Business Review 81: 56-63. Strategie Management Journal 24(1): 61-86.
Lovallo D, Sibony O. 2010. The case for behavioralPowell TC. 2004. Strategy, execution, and idle rational-
strategy. McKinsey Quarterly. March: 1-14. ity. Journal of Management Research 4(2): 77-98.
Luthans F, Youssef CM, Avolio BJ. 2007. Psychological
Powell TC. 2011. Neurostrategy. Strategic Management
Capital: Developing the Human Competitive Edge.Journal 32(13).
Oxford University Press: Oxford, U.K. Powell TC, Lovallo D, Caringal 2006. Causal ambi-
March JG. 1962. The business firm as a politicalguity and management perception. Academy of Man-
coalition. Journal of Politics 24(4): 662-678. agement Review 31(1): 175-196.
March JG, Shapira Z. 1987. Managerial perspectivesPrahalad
on CK, Bettis RA. 1986. The dominant logic:
risk and risk-taking. Management Science 33(11):a new linkage between diversity and performance.
1404-1418. Strategic Management Journal 7(6): 485-501.
March JG, Simon HA. 1958. Organizations. Wiley:PriemNew RL, Cycyota CS. 2001. On strategic judgment.
York. In Handbook of Strategic Management, Hitt MA,
Markle AB. 2011. Dysfunctional learning in decision Freeman RE, Harrison JS (eds). Blackwell Publishers:
Oxford, U.K.; 493-519.
processes: the case of employee reciprocity. Strategic
Management Journal 32(13). Rafaeli A, Sutton RI. 1989. The expression of emotion
Marschak J. 1955. Elements for a theory of teams. in everyday life. Research in Organizational Behavior
Management Science 1(2): 127-137. 11: 1-42.
Meyer JW, Rowan B. 1977. Institutional organizations:
Reger RK, Huff A. 1993. Strategic groups: a cognitive
formal structure as myth and ceremony. American perspective. Strategic Management Journal 14(2):
Journal of Sociology 83: 340-363. 103-123.
Miles RE, Snow CC. 1978. Organizational Strategy,
Rumelt RP. 1995. Inertia and transformation. In
Structure, and Process. McGraw-Hill: New York. Resources in an Evolutionary Perspective: Towards
Mintzberg H, Ahlstrand , Lampel J. 1998. Strategy
a Synthesis of Evolutionary and Resource-Based
Safari: A Guided Tour of the Wilds of StrategicApproaches to Strategy, Montgomery CA (ed).
Management. Free Press: New York. Kluwer Academic: Norwell, MA: 101-132.
Moore DA, Oesch JM, Zietsma C. 2007. What compe-
Russo JE, Schoemaker PJH. 2002. Winning Decisions:
tition? Myopic self-focus in market entry decisions.
Getting it Right the First Time. Random House: New
Organization Science 18(3): 440-454. York.
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms
1386 . . Powell D. Lovallo, and . R. Fox
Ryall MD. 2003. Subjective rationality, self-confirmingTajfel H (ed). 1978. Differentiation Between Social
equilibrium, and corporate strategy. Management Groups. Academic Press: London, U.K.
Science 49: 936-949. Terry DJ, Callan VJ. 1998. In-group bias in response to
Salancik GA, Meindl JR. 1984. Corporate attributions an organizational merger. Group Dynamics: Theory,
as strategic illusions of management control.Research, and Practice 2(2): 67-81.
Administrative Science Quarterly 29(2): 238-254. Tetlock PE. 1990. Some thoughts on fourth-generational
Schelling TC. 1978. Micromotives and Macrobehavior models
. of social cognition. Psychological Inquiry
W.W. Norton & Company: New York. 1(3): 212-214.
Schoemaker PJH. 1990. Strategy, complexity, and Tetlock
eco- PE. 2000. Cognitive biases and organizational
nomic rent. Management Science 36(1): 1178-1192. correctives: do both disease and cure depend on
Schwenk CR. 1984. Cognitive simplification processes the politics of the beholder? Administrative Science
in strategic decision-making. Strategic Management Quarterly 45(2): 293-326.
Journal 5(2): 111-128. Thaler RH, Sunstein CR. 2008. Nudge: Improving
Schwenk CR, Thomas H. 1983. Formulating the mess: Decisions About Health, Wealth, and Happiness . Yale
the role of decision aids in problem formulation. University Press: New Haven, CT.
Omega 20: 10-20. Turner JC. 1975. Social comparison and social identity:
Simon HA. 1987. Making management decisions: the role some prospects for intergroup behavior. European
of intuitions and emotion. Academy of Management Journal of Social Psychology 5(1): 5-34.
Executive 1(1): 57-64. Tversky A, Kahneman D. 1974. Judgment under uncer-
Soil JB, Larnck RP. 2009. Strategies for revising judg- tainty: heuristics and biases. Science 185: 1124-1131.
Walsh JP. 1995. Managerial and organizational cognition:
ment: how (and how well) people use others' opinions.
Journal of Experimental Psychology: Learning, Mem- notes from a trip down Memory Lane. Organization
ory, and Cognition 35: 780-805. Science 6(3i: 280-321.
Starbuck WH, Milhken FJ. 1988a. Challenger: fine- Wegner DM. 1987. Transactive memory: a contemporary
tuning the odds until something breaks. Journal analysisof of the group mind. In Theories of Group
Management Studies 25: 319-340. Behavior, Mullen B, Goethals GR (eds). Springer-
Starbuck WH, Milliken FJ. 1988b. Executives' percep- Verlag: New York; 185-208.
tual filters: what they notice and how they make Weick KE. 1995. Sensemaking in Organizations, bage:
sense. In The Executive Effect: Concepts and Meth- Thousand Oaks, CA.
ods for Studying Top Managers, Hambrick DCWildavsky (ed). A. 1972. The self-evaluating organization.
JAI Press: Greenwich, CT; 35-65. Public Administration Review 32(5): 509-520.
Stasser G, Titus W. 1985. Pooling of unshared informa- Winter SG, Sterman J, Massey C, Lovallo D, Shapira Z,
tion in group decision making: biased information Denrell D, Fang C. 2008. Behavioral strategy: a
sampling during discussion. Journal of Personality research agenda. Symposium proposal, 2008 Academy
and Social Psychology 48(6): 1467-1478. of Management Annual Meeting, Anaheim, CA.
Staw BM. 1981. The escalation of commitment to a Zajac EJ, Bazerman MH. 1991. Blind spots in strategic
course of action. Academy of Management Reviewdecision-making:
6: the case of competitor analysis.
577-587. Academy of Management Review 16: 37-56.
Staw BM, Barsade SG. 1993. Affect and managerial Zajonc RB. 1965. Social facilitation. Science 149:
269-274.
performance: a test of the sadder-but-wiser vs.
happier-and-smarter hypotheses. Administrative Sci-
ence Quarterly 38(2): 304-331.
Copyright 2011 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 1369-1386 (2011)
DOI: 10.1002/smj
This content downloaded from 27.7.197.128 on Sat, 29 Apr 2017 19:34:42 UTC
All use subject to http://about.jstor.org/terms