Mental Representation and the Discovery of New Strategies

Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect how managers search for profitable strategies as well as the quality of strategies they discover. To study how mental representation and search interact, we formally model the dual search over possible representations and over policy choices of a strategy 'landscape.' We analyze when it is preferable to emphasize searching for the best policies rather than the best mental representation, and vice versa. We show that in the long run a balance between the two search modes not only results in better expected performance but also reduces the variation in performance. Additionally, the paper describes conditions under which increased accuracy of mental representations can actually worsen firm performance.

[1]  R. Wood,et al.  Mental Models, Decision Rules, and Performance Heterogeneity , 2011 .

[2]  A. Whitehead.  An Introduction to Mathematics , 1949, Nature.

[3]  Kim B. Clark,et al.  Design Rules: The Power of Modularity Volume 1 , 1999 .

[4]  W. H. F. Barnes.  The Nature of Explanation , 1944, Nature.

[5]  Daniel A. Levinthal,et al.  Chasing a Moving Target: Exploitation and Exploration in Dynamic Environments , 2011, Manag. Sci..

[6]  Wayne F. Cascio,et al.  What is Strategy , 2012 .

[7]  Kim B. Clark,et al.  Design Rules: The Power of Modularity , 2000 .

[8]  Jan W. Rivkin,et al.  Balancing Search and Stability: Interdependencies Among Elements of Organizational Design , 2003, Manag. Sci..

[9]  Felipe A. Csaszar,et al.  Positioning on a Multiattribute Landscape , 2014, Manag. Sci..

[10]  Shahid A. Zia,et al.  Competitive Strategy: Techniques for Analyzing Industries & Competitors , 2013 .

[11]  Jerker Denrell,et al.  Strategic responsiveness and Bowman's risk–return paradox , 2007 .

[12]  Daniel A. Levinthal.  A behavioral approach to strategy—what's the alternative? , 2011 .

[13]  Giovanni Gavetti.  Toward a Behavioral Theory of Strategy , 2012 .

[14]  Arie Y. Lewin,et al.  Interdependency, Competition, and the Distribution of Firm and Industry Profits , 2006, Manag. Sci..

[15]  R. Bettis.  Performance differences in related and unrelated diversified firms , 1981 .

[16]  N. Foo.  Conceptual Spaces—The Geometry of Thought , 2022 .

[17]  Daniel A. Levinthal,et al.  Myopia of Selection: Does Organizational Adaptation Limit the Efficacy of Population Selection? , 2007 .

[18]  Felipe A. Csaszar,et al.  Organizational Decision Making: An Information Aggregation View , 2012, Manag. Sci..

[19]  H. Simon,et al.  Rational choice and the structure of the environment. , 1956, Psychological review.

[20]  Daniel A. Levinthal,et al.  Exploration and Exploitation in Organizational Learning , 2007 .

[21]  John F. Muth,et al.  A RISK/RETURN PARADOX FOR STRATEGIC MANAGEMENT , 2008 .

[22]  Jack A. Nickerson,et al.  A Knowledge-based Theory of the Firm - A Problem-solving Perspective , 2004, Organ. Sci..

[23]  Daniel A. Levinthal,et al.  Hoping for A to Z While Rewarding Only A: Complex Organizations and Multiple Goals , 2009, Organ. Sci..

[24]  Tim Smithin,et al.  Mapping Strategic Thought , 1991 .

[25]  Mary J. Benner,et al.  The Influence of Prior Industry Affiliation on Framing in Nascent Industries: The Evolution of Digital Cameras , 2012 .

[26]  John H. Holland,et al.  Adaptation in Natural and Artificial Systems: An Introductory Analysis with Applications to Biology, Control, and Artificial Intelligence , 1992 .

[27]  R. Samuels.  Mind: Introduction to Cognitive Science, Paul Thagard, MIT Press (1996), ISBN: 0 262 20106 2 , 1997 .

[28]  John H. Holland,et al.  Induction: Processes of Inference, Learning, and Discovery , 1987, IEEE Expert.

[29]  Felipe A. Csaszar,et al.  Positioning on a Multi-Attribute Landscape , 2014 .

[30]  P. Johnson-Laird,et al.  Mental Models: Towards a Cognitive Science of Language, Inference, and Consciousness , 1985 .

[31]  LevinthalDaniel,et al.  Hoping for A to Z While Rewarding Only A , 2009 .

[32]  H. Thomas,et al.  Attitudes Toward Risk and The Risk–Return Paradox: Prospect Theory Explanations , 1988 .

[33]  F. Attneave,et al.  The Organization of Behavior: A Neuropsychological Theory , 1949 .

[34]  Wolff-Michael Roth,et al.  On Meaning and Mental Representation , 2013 .

[35]  Thorbjørn Knudsen,et al.  Two Faces of Search: Alternative Generation and Alternative Evaluation , 2007, Organ. Sci..

[36]  K. J. Craik,et al.  The nature of explanation , 1944 .

[37]  John F. Sowa,et al.  Knowledge Representation and Reasoning , 2000 .

[38]  Daniel A. Levinthal,et al.  Doing versus seeing: acts of exploitation and perceptions of exploration , 2008 .

[39]  H. Simon,et al.  An Empirically Based Microeconomics , 1997 .

[40]  Christoph H. Loch,et al.  Selectionism and Learning in Projects with Complexity and Unforeseeable Uncertainty , 2004, Manag. Sci..

[41]  C. Prahalad,et al.  The dominant logic: A new linkage between diversity and performance , 1986 .

[42]  N. Nayab.  Kaizen: The key to Japan‚s competitive success , 2009 .

[43]  Dennis A. Gioia,et al.  Mapping Strategic Thought. , 1992 .

[44]  Constance E. Helfat,et al.  Managerial cognitive capabilities and the microfoundations of dynamic capabilities , 2015 .

[45]  Allen Newell,et al.  Computer science as empirical inquiry: symbols and search , 1976, CACM.

[46]  Kim B. Clark,et al.  The Option Value of Modularity in Design: An Example From Design Rules, Volume 1: The Power of Modularity , 2000 .

[47]  M. Shubik,et al.  A Behavioral Theory of the Firm. , 1964 .

[48]  Daniel A. Levinthal,et al.  Looking Forward and Looking Backward: Cognitive and Experiential Search , 2000 .

[49]  Jan W. Rivkin,et al.  Patterned Interactions in Complex Systems: Implications for Exploration , 2007, Manag. Sci..

[50]  A NickersonJack,et al.  A Knowledge-Based Theory of the Firm--The Problem-Solving Perspective , 2004 .

[51]  Nicolaj Siggelkow,et al.  How Much to Copy? Determinants of Effective Imitation Breadth , 2010, Organ. Sci..

[52]  G Gigerenzer,et al.  Reasoning the fast and frugal way: models of bounded rationality. , 1996, Psychological review.

[53]  Edward H. Bowman,et al.  A risk/return paradox for strategic management , 2011 .

[54]  Clayton M. Christensen.  The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail , 2013 .

[55]  Roger Martin.  The Design of Business: Why Design Thinking is the Next Competitive Advantage , 2009 .

[56]  Daniel A. Levinthal.  Adaptation on rugged landscapes , 1997 .

[57]  A. Tversky,et al.  Prospect theory: an analysis of decision under risk — Source link , 2007 .

[58]  R. Bettis,et al.  Exploring longitudinal risk‐return relationships , 2015 .

[59]  Renée Mauborgne,et al.  Blue ocean strategy. , 2004, Harvard business review.

[60]  Daniel A. Levinthal,et al.  Bridging Contested Terrain: Linking Incentive-Based and Learning Perspectives on Organizational Evolution , 2003 .

[61]  J. Knott.  The organization of behavior: A neuropsychological theory , 1951 .

[62]  Rocky Ross,et al.  Mental models , 2004, SIGA.

[63]  W. Sharpe.  CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK* , 1964 .

[64]  M. Minsky.  The Society of Mind , 1986 .

[65]  H. Simon,et al.  A Behavioral Model of Rational Choice , 1955 .

[66]  Christopher B. Bingham,et al.  Rational heuristics: the ‘simple rules’ that strategists learn from process experience , 2011 .

[67]  E. Brunswik,et al.  The Conceptual Framework of Psychology , 1954 .

[68]  Daniel A. Levinthal,et al.  Bounded Rationality and the Search for Organizational Architecture: An Evolutionary Perspective on the Design of Organizations and Their Evolvability , 2004 .

[69]  Giovanni Gavetti,et al.  Capabilities, cognition, and inertia: evidence from digital imaging , 2000 .

[70]  Jan W. Rivkin.  Imitation of Complex Strategies , 2000 .

[71]  J. Walsh.  Managerial and Organizational Cognition: Notes from a Trip Down Memory Lane , 1995 .

[72]  Allen Newell,et al.  Report on a general problem-solving program , 1959, IFIP Congress.

[73]  V. Mahajan,et al.  Risk/Return Performance of Diversified Firms , 1985 .

[74]  P. Barr,et al.  Cognitive change, strategic action and organizational renewal , 1993 .

[75]  G. Reeke.  Marvin Minsky, The Society of Mind , 1991, Artif. Intell..

[76]  Scott E. Page,et al.  Interpreted and generated signals , 2009, J. Econ. Theory.

[77]  Mikael Krogerus,et al.  The Decision Book: Fifty Models for Strategic Thinking , 2011 .

[78]  Brian S. Silverman,et al.  The `problem' of creating and capturing value , 2007 .

[79]  D. Martignoni,et al.  Consequences of Misspecified Mental Models: Contrasting Effects and the Role of Cognitive Fit , 2016 .

[80]  P. Thagard,et al.  Mind: Introduction to cognitive science, 2nd ed. , 2005 .

[81]  J. March.  Exploration and exploitation in organizational learning , 1991, STUDI ORGANIZZATIVI.