Behavioral theory of the firm

The behavioral theory of the firm first appeared in the 1963 book A Behavioral Theory of the Firm by Richard M. Cyert and James G. March. The work on the behavioral theory started in 1952 when March, a political scientist, joined Carnegie Mellon University, where Cyert was an economist. A behavioral model of rational choice by Herbert A. Simon paved the

The problem of collective goals in organization

If we wish to develop a theory that predicts and explains business decision-making behavior, we face a problem that can be paraphrased in terms of the following: People (i.e., individuals) have goals; collectivities of people do not. To define a theory of organizational decision making, we seem to need something analogous — at the

The organizational goal formation process

In the theory to be outlined here, we consider three major ways in which the objectives of a coalition are determined. These are: the bargaining process by which the composition and general terms of the coalition are fixed; the internal organizational process of control by which objectives are stabilized and elaborated; the process of

Business goals and price and output decisions

Suppose we wish to use the general considerations noted above to construct a model of organizational decision making by a business firm determining price, output, and general sales strategy. As we have already noted, we are not yet in a good position to develop a theory that focuses intensively on the formation of objectives

Expectations in theories of business decision making

Theories of business decision making generally assume that estimates of cost and return in some form are made by the firm and that decision behavior depends heavily on such estimates. For example, the standard theory of price treats investment and internal resource allocation as problems in maximization. The firm invests in each available alternative

Four case studies in the use of organizational expectations

The three firms observed are all well-established, successful organizations: a large, heavy manufacturing concern, a medium-sized construction firm, and a medium- large manufacturing and retailing concern. Each of the firms gave the research group full access to files and to the activities of the organization. The decisions and the studies were made during 1953-1956.

Communications in theories of business decision making

An organization not only seeks information through search behavior, it  also processes information. In most theories of business decision making, communication effects are ignored. Prima facie this exclusion seems implausible. If, for example, pricing decisions are assumed to be based on expectations concerning future sales, costs, and competitors’ behavior, it is hard to see

Two experiments on organizational communication

In order to explore the effect of conflict (as reflected in presumed payoffs) on communicated information, we undertook two experiments on organizational communication. The first looks at individual bias, the second at organizational bias. 1. An experiment on communication bias We wish to test the proposition that individuals can and do modify their subjective

Implications for a theory of organizational expectations

We can now examine in more general terms the kind of expectations model that is suggested by the studies reported above and by our present under-standing of human organization problem solving. As before, we consider the organization to be a coalition having a series of more or less independent goals imperfectly rationalized in terms

A partial model of organizational choice

The objective in this section is to show how the general attributes of decision making indicated in Chapters 3 and 4 can be introduced into a choice model. Because the elaboration is an obvious simplification of some important features of choice procedures in a complex organization, we call it a partial model. It summarizes

The firm as an adaptive institution

In Chapter 2 (and subsequently) we suggested that the classic theory of an omniscient firm is inappropriate for a theory of the firm directed toward answering questions about microbehavior. Without denying the substantial abilities of organizations as problem-solving and decision-making institutions, we have suggested that a business firm is constrained by the uncertainty of

Standard operating procedures of the firm

Any organization as complex as a firm adapts to its environment at many different (but interrelated) levels. It changes its behavior in response to short-run feedback from the environment according to some fairly well-defined rules. It changes rules in response to longer-run feedback according to some more general rules, and so on. At some

Basic Concepts in the Behavioral Theory of the Firm: Goals, expectations, and choice

The basic framework for analysis we have proposed, like the classic one, has two major organizing devices: (1) It has a set of exhaustive variable categories; (2) it has a set of relational concepts. The exhaustive categories are implicit in the organization of this volume. We have argued that we can analyze the process

Basic Concepts in the Behavioral Theory of the Firm: Four major relational concepts

In the course of developing the three subtheories, we have developed a relatively small number of relational concepts. In many respects, they represent the heart of our theory of business decision making. The four major concepts used in the theory are (1) quasi resolution of conflict, (2) uncertainty avoidance, (3) problemistic search, and (4)

The organizational decision-making process of Behavioral Theory of the Firm

We have described four basic concepts that seem to us fundamental to an understanding of the decision-making process in a modern, large-scale business organization. The quasi resolution of conflict, uncertainty avoidance, problemistic search, and organizational learning are central phenomena with which our models must deal. In our judgment, the natural theoretical language for describing

General view of price and output determination in a retail department store

As we suggested in earlier chapters, the organization makes relatively independent price and output decisions. There are loose connections between the two decision areas, but for the most part decisions are made with reference to different goals and different stimuli. Although we will want to elaborate the goals of the organization somewhat when we

Details of output determination in a retail department store

The concept of output is not obviously relevant to a department store. In fact, if our major interest were in retail organizations, we would not describe any decisions as being output decisions. However, we are interested more generally in business firms, and we wish to identify a decision variable in the retail setting that

Details of price determination in a retail department store

The firm recognizes three different pricing situations: normal, sales, and mark-down pricing. The first two situations occur at regularly planned times. The third is a contingent situation, produced by failure or anticipated failure with respect to organizational goals. In each pricing situation the basic procedure is the same, the application of a mark-up to

Tests of the detailed models in a retail department store

We have tried to develop a model that would yield testable predictions, but there are two major limits on such a goal. First, we have not been completely successful in defining a model that will make precise predictions in every decision area. Second, where we have been successful in developing a model, we are

A general model of Price and Output Determination

In this section we describe the decision processes assumed in the model at three different levels of detail. Each description is consistent with the others; they become progressively better defined. 1.  A gross description of the model We assume an n -firm oligopolistic market. Each of the firms is similar in the sense that