Organizational Decision Making Under Uncertainty Shocks

Luis Ballesteros and Howard Kunreuther

No 24924, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D01 D03 D81 F23 L2 L22 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-upt
Note: IO
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.nber.org/papers/w24924.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:24924

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24924

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().