Chasing a Moving Target: Exploitation and Exploration in Dynamic Environments

Hart E. Posen () and Daniel A. Levinthal ()
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Hart E. Posen: Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109
Daniel A. Levinthal: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Management Science, 2012, vol. 58, issue 3, 587-601

Abstract: A common justification for organizational change is that the circumstances in which the organization finds itself have changed, thereby eroding the value of utilizing existing knowledge. On the surface, the claim that organizations should adapt by generating new knowledge seems obvious and compelling. However, this standard wisdom overlooks the possibility that the reward to generating new knowledge may itself be eroded if change is an ongoing property of the environment. This observation in turn suggests that environmental change is not a self-evident call for strategies of greater exploration. Indeed, under some conditions the appropriate response to environmental change is a renewed focus on exploiting existing knowledge and opportunities. We develop a computational model based on the canonical multiarmed bandit formulation of exploration and exploitation. We endeavor to understand the mechanisms by which environmental change acts to make purposeful efforts at organizational adaptation less (or more) valuable. This paper was accepted by Jesper SØrensen, organizations.

Keywords: adaptation; learning; exploration; exploitation; turbulence (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (16)

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