Organizational decision making under uncertainty shocks
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Date
2020-08
DOI
Authors
Ballesteros, Luis
Kunreuther, Howard
Version
First author draft
OA Version
Citation
L. Ballesteros, H. Kunreuther. 2020. "Organizational Decision Making during Systemic Disruption" Working paper series (National Bureau of Economic Research).
Abstract
In line with the fallacy of riskification of uncertainty by which decision makers believe that the
effects of unpredictable phenomena can be captured accurately by probability distributions,
organizational scholars commonly treat the organizational inefficiency in dealing with
uncertainty shocks—exogenous hazards whose welfare effects spread across industries and
markets, such as natural disasters, terrorist attacks, and financial crises—as a problem of risk
management. This is problematic because the consequences of uncertainty shocks outstrip the
predictability capacity for the average manager and entail a greater complexity of internal and
external factors. Moreover, their uniqueness makes translating experience into learning far more
difficult. We seek to address this inadequate approach with a theoretical framework that captures
the multidimensional complexity of organizations preparing for, coping with, and recovering
from exogenous uncertain disruption. We bring together the literatures on cognitive psychology
that suggest that biases and heuristics drive behavior under uncertainty, a Neo-Carnegie
perspective that indicates that organizational structure and strategy regulate these behavioral
factors, and institutional theory that points to stakeholder and institutional dynamics affecting
economic incentives to invest in prevention and business continuity. Taken together, this article
offers the foundation for a behaviorally plausible, decision-centered perspective on organizational
decision-making under uncertainty.
Description
License
© 2018 by Luis Ballesteros and Howard Kunreuther. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.