3. great minds in management part i nu 2020

1
Part I: Individuals and Their Environment
1.Image Theory.
6.Upper Echelons Theory: Origins, Twists and Turns, and Lessons Learned,
8. How Job Characteristics Theory Happened.
9. Do Employee Attitudes Towards Organizations Matter?
The Study of Employee Commitment to Organizations
10. Developing Psychological Contract Theory
11. The Escalation of Commitment: Steps Toward an Organizational Theory
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1 3. Great mind in Management Part I NU 2020 - 25 September BE 2563

1.IMAGE THEORY.
Lee R. Beach and Terrence R. Mitchell 
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Neuroeconomics

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The role of emotion in decision-making: A cognitive neuroeconomic approach

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Definition: Problem
• A formal statement of a set of
assumptions about the world.
• The assumptions are rarely made explicit.
• Whether we see an event or situation as a
”problem” depends on our view of the
world.
– Problems do not exist
independently of the person who
sees them.
– Mistaking the map for the territory.

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Factors affecting strategic decisions
About resources, core competencies and capabilities:
Complexity:
regarding the interrelated causes shaping a
firm’s environments and perceptions of the
environments.
Intra-organizational conflicts:
among people making managerial decisions
and those affected by them.
Uncertainty:
regarding characteristics of both the general
and the industry environments, competitors’
actions and customers’ preferences.

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Phases in the strategic decision making process
DESIGN CHOICE
FEEDBACK and
LEARNING
INTELLIGENCE IMPLEMENTATION
Subject to constraints….
• Individual
• Organizational
• Cultural

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The principle of ”bounded rationality”
”The capacity of the human mind for formulating and
solving complex problems is very small compared to the
size of those problems whose solution is required for
objectively rational behavior in the real world or even
for a reasonable approximation to such objectivity.”
Simon, H.A. (1957). Administrative Behavior: A study of decision making processes
in administrative organizations, 4th ed. New York: The Free Press.

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Decision Making Theories

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Barnard’s Model VS. Image Theory Model

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Simon ’s Bounded Rationality Model

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SIMONS 3 STAGE MODEL

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bounded rationality

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Do we always make the best possible decisions ?

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Framing Manipulations

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Model for Behavioral Economic Decision

18Terence Mitchel
Beach, Lee Roy -
Image Theory and
Decision Making

“Man as an intuitive statistician”
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Beach, Lee Roy - Image Theory and Decision Making

B.) Images as they Influence two Types of Decisions:
• 1.) Adoption Decision: refers to which decision is selected--affected by:
– a.) compatibility - degree of consistency between a course of action and
one’s personal values and beliefs.
– b.) profitability - comes into play when several alternatives are equally good--
can be achieved by other decision making strategies (i.e., additive models).
• 2.) Progress Decision: reevaluation of an initial decision to monitor its progress.
This is much like an assessment of subgoals in means/ends analysis.
 
• Schematic models predict that one would use a simpler strategy early on, when many
decisions are possible; but once the number of alternatives is narrowed down than a more
complex strategy can be instituted. This agrees with the work by Payne (1972).
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Prospect Theory

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Risk behavior
• Tversky and Kahneman
work on the effect of
framing on risk
preference.
– Risk-averse
concerning gains
– Risk-seeking
concerning losses

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Sense may be in the eye of the beholder, but beholders
vote and the majority rules. K.E. Weick
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Sense-making :
A characteristic of humans is trying to make sense of incomprehensible things.
Sense-making is described as…
– Structuring the unknown, but in different ways.
– Placing stimuli into some sort of framework – a “frame of reference” that guides interpretations.
– A thinking process that uses retrospective accounts to explain surprises.
– Reciprocal interaction of information seeking, meaning assignment and action.
– An interpretive process needed for organizational members to understand and share
understandings about features of the organization.
– A process in which individuals develop cognitive maps of their environment.

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Sense-making:  
Multiple perspectives
Descriptions
of relevant
systems of
purposeful
activity
Yields
choices of...
Comparison of
descriptions with the
perceived reality
Actions to
improve the
situation
Influenced by individuals’
mental models
A real-world
situation of
concern

A model of cognition: 
The human information processing model
Schema Task
Environment
FEEDBACK
DATA
PROCESSING
DATA
ACQUISITION
ACTION OUTCOME
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Biases
Assumptions:
– Judgment is plagued by random error and systematic biases.
– Good judgment requires mental skills exceeding our capabilities.
Capacity of the mind is small relative to the size of the problems.
Heuristics and rules of thumb are used to cope with problem complexity.
Good news
➔ This allows us to deal with the real world.
Bad news
➔ This often leads to faulty data acquisition and processing.

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Mental models
• Personal theories of how things work
– The most important factors.
– The causal and correlational relationships that link them.
• These models have different names:
– Conceptual structures
– World views
– Schema
– Cognitive maps
– Institutional models

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Feedback biases and learning
Acting
Choosing
Observing
consequences
(match/mismatch
with expectations)
Mental model
(governing variables
and relationships)
Double
loop
learning Single loop
learning

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Heuristics and biases in decision making -
Availability Judgments distorted by easily recalled events
Selective perception Expectations bias observations
Illusory correlation Encourages belief that unrelated variables are correlated
Conservatism Ignoring full effect of new information
Law of small numbers Overestimating representativeness of small groups
Regression bias Failure to allow for regression to the mean
Wishful thinking Probability of desired events judged too highly
Illusion of control Overestimating personal control over outcomes
Logical reconstruction “Logical” reconstruction of inaccurately recalled events
Hindsight bias Overestimation of predictability of past events

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Perception in decision making
• Biases and heuristics
• Antidotes

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Antidotestocounteractbiases
Bias Antidote
Under-
estimating uncertainty
❖ Use frameworks for stratgic analysis
❖ Use multiple perspectives
❖ Devil’s advocate
❖ Consider improbable or unpopular assumptions
❖ Re-evaluate over time
Believing chance is
predictable
Selective perception
Anchoring and
adjustment
Seeing opportunities
incrementally
Seeking only confirming
evidence
Framing biases
Reasoning by
inappropriate analysis
Escalating commitment
irrationally
Teisberg, E.O. (1991). ”Why do good
managers choose poor strategies?”
Harvard Business School Case 9-391-172.
Antidotes to counteract biases

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Skills for working with mental models
• Becoming more aware of your own thinking and reasoning.
➔ Reflection
• Inquiring into others’ thinking and reasoning.
➔ Inquiry
• Making your own thinking and reasoning more visible to
others.
➔ Advocacy

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Descriptive decision theory Neuroeconomics, psychology, behavior

3. GOAL SETTING THEORY: THEORY BUILDING BY
INDUCTION.
Edwin A. Locked and Gary P. Latham 
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Expectancy Theory, Goal Setting and Designing Jobs that Motivate

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Work Motivation Theories

Goal Setting Theory
Edwin A. Locked Gary P. Latham
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Goals affect behavior (job performance), direct attention and action.
• A goal is defined simply as what the individual is consciously
trying to do. Locke and Latham postulate that the form in
which one experiences one’s value judgments is emotional.
• That is, one’s values create a desire to do things consistent
with them. Goals also affect behavior (job performance)
through other mechanisms. For Locke and Latham, goals,
therefore, direct attention and action.
• Furthermore, challenging goals mobilize energy, lead to
higher effort, and increase persistent effort. Goals motivate
people to develop strategies that will enable them to perform
at the required goal levels.
• Finally, accomplishing the goal can lead to satisfaction and
further motivation, or frustration and lower motivation if the
goal is not accomplished.
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General model of goal-setting theory.
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Building a Practically Useful Theory of Goal Setting and Task Motivation A 35-Year Odyssey
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Building a practically useful theory of goal setting and task motivation: A 35-year odyssey.
By Locke, Edwin A.,Latham, Gary P.
American Psychologist, Vol 57(9), Sep 2002, 705-717

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An Integrated Model for Motivation and Self-efficacy in Decision Making (ME-DM)
Felix Schürholz Decision Coach

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An Integrated Model for Motivation and Self-efficacy in Decision Making (ME-DM)
Felix Schürholz Decision Coach

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Goal Setting Psychology : Meaningful and Self-Efficacy

Seminar in contemporary management 2015
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Development of Goal Importance

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Moderators and Mediators

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• Finding #1. The more difficult the goal, the greater the achievement.
• Finding #2. The more specific or explicit the goal, the more precisely performance is regulated.
• Finding #3. Goals that are both specific and difficult lead to the highest performance.
• Finding #4. Commitment to goals is most critical when goals are specific and difficult.
• Finding #5. High commitment to goals is attained when (a) the individual is convinced that the goal is important; and (b) the individual is convinced that the goal
is attainable (or that, at least, progress can be made toward it). (These are the same factors that influence goal choice)
• Finding #6. In addition to having a direct effect on performance, self-efficacy influences: (a) the difficulty level of the goal chosen or accepted, (b) commitment
to goals, (c) the response to negative feedback or failure, and (d) the choice of task strategies.
• Finding #7. Goal setting is most effective when there is feedback showing progress in relation to the goal.
• Finding #8. Goal setting (along with self-efficacy) mediates the effect of knowledge of past performance on subsequent performance.
• Finding #9. Goals affect performance by affecting the direction of action, the degree of effort exerted, and the persistence of action over time.
• Finding #10. (a) Goals stimulate planning in general. Often the planning quality is higher than that which occurs without goals. (h) When people possess task
or goal-relevant plans as a result of experience or training, they activate them virtually automatically when confronted with a performance goal. (c) Newly
learned plans or strategies are most likely to be utilized under the stimulus of a specific, difficult goal.
• Finding #11. When people strive for goals on complex tasks, they are least effective in discovering suitable task strategies if: (a) they have no prior experience
or training on the task; (b) there is high pressure to perform well; and (c) there is high time pressure (to perform well immediately).
• Finding #12. Goals (including goal commitment), in combination with self-efficacy, mediate or partially mediate the effects of several personality traits and
incentives on performance.
• Finding #13. Goal-setting and goal-related mechanisms can be trained and/or adopted in the absence of training for the purpose of self-regulation.
• Finding #14. Goals serve as standards of self-satisfaction, with harder goals demanding higher accomplishment in order to attain self-satisfaction than easy
goals (Locke 1996, underline is mine).
What Locke’s research revealed, laying the foundation for future
studies, can be listed in the following set of findings:

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Latest Of Goal Setting Theory

New Directions in Goal-Setting Theory:Edwin A. Locke1 and Gary P. Latham
ABSTRACT—Goal-setting theory is summarized regarding
the effectiveness of specific, difficult goals; the relationship
of goals to affect; the mediators of goal effects; the relation
of goals to self-efficacy; the moderators of goal effects; and
the generality of goal effects across people, tasks, countries,
time spans, experimental designs, goal sources
(i.e., self-set, set jointly with others, or assigned), and
dependent variables. Recent studies concerned with goal
choice and the factors that influence it, the function of
learning goals, the effect of goal framing, goals and affect
(well-being), group goal setting, goals and traits, macrolevel
goal setting, and conscious versus subconscious goals
are described. Suggestions are given for future research. 54

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The contest of motivational theories in explaining performance:
Expectancy vs. Goal setting
What do you expect?
RQ1: Do the motivational theories, expectancy and goal setting, have correct theoretical
constructs?
RQ2: Which motivational theory, expectancy or goal setting, is more accurate in predicting
performance in a moderate and hard goal context?

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Another important aspect of personal goal-setting success is known as “self-concordance”: the consistency
with the person’s core values and high-level interests (Sheldon & Elliot 1999, Sheldon 2002, Smith et al 2011).
Another term for self-concordant goal setting is “conation”, the pursuit of personal agendas.

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Motivation related to work: A century of progress.

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Self Determination Theory (SDT)

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6.Upper Echelons Theory: Origins, Twists
and Turns, and Lessons Learned,
Donald C. Hambrick

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Organizational information processing theory (Galbraith, 1973)
Social Information Processing Theory
Information ProcessingTheory

Don Hambrick is the Samuel Bronfman Professor of Democratic
Business Enterprise at the Graduate School of Business, Columbia
University. He holds degrees from the University of Colorado
(B.S.), Harvard University (M.B.A.), and the Pennsylvania State
University (Ph.D.).
An internationally recognized scholar in the field of top
management, he is the author of numerous articles, chapters,
and books on the topics of strategy formulation, strategy
implementation, executive staffing and incentives, and the
composition and processes of top management teams. Among his
works is "Top Management Teams: Key to Strategic Success,"
which won the award for best article in California Management
Review. His recent book, Navigating Change: How CEOs, Top
Teams, and Boards Steer Transformation, presents leading-edge
thinking for executives who are embarking on corporate change
initiatives. Another recent book, Strategic Leadership: Top
Executives and Their Effects on Organizations, is extensively
used by scholars of executive leadership. He also conducted the
widely-noted worldwide study of executive leadership,
Reinventing the CEO.
Don Hambrick
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Strategic choice under conditions of bounded rationality
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The Black Box in UE Research
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Longer tenure of the CEO indicates that more time has passed for the CEO to implement his/her strategy and therefore the TMT has more members with
characteristics similar to the CEO. Therefore this indicates that longer CEO tenure will positively influence the homogenization over time.
What is the effect of the CEO organizational tenure on the homogenization of
TMTs over time?

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Effect of Inter-organizational Network on TMT –
Entry Mode Choice relationship

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An upper echelons perspective on information technology business value

The Role of External Environment in Upper Echelons Theory: A Review of Existing Literature and Future Research Directions
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DOES UPPER ECHELONS TEAM DYNAMIC MATTER? THE CRITICALITY OF EXECUTIVE TEAM BEHAVIOR IN ECONOMIC VALUE CREATION
SOLANGE CHARAS 2014

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SOLANGE CHARAS 2014

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SOLANGE CHARAS 2014

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SOLANGE CHARAS 2014

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SOLANGE CHARAS 2014

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8. HOW JOB CHARACTERISTICS THEORY
HAPPENED.
Greg R. Oldham and J. Richard Hackman
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Job Characteristics Theory
Greg R. Oldham J. Richard Hackman
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Job Characteristics Theory

Implementing Concepts of Job Characteristics Theory
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Work Outcomes
To measure work outcomes, Hackman and Oldham (1976) developed what they termed the Motivational Potential Score (MPS; as cited in PSU WC,
2015a, L. 10). MPS suggests that by measuring the elements from the core job dimensions and critical psychological states, one may be able to
predict the potential for motivating a person. MPS is a summary index of a job's potential for motivating a person using the five core dimensions (Smith
& Hitt, 2005). Skill variety, task identity, and task significance all contribute to a sense of meaningfulness. Autonomy gives the jobholder a sense of
responsibility, and feedback satisfies the need for knowledge. A score of 0 on any one of the characteristics results in an overall motivational score of 0
(PSU WC, 2015a, L. 10). Scores above 0 will vary by the individuals rating the job.
Work Outcomes:
:the Motivational Potential Score (MPSX

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Redesigning Jobs

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Integrative framework of Work Design

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Campion and Thayer's Four approaches to Job Design
Application of Job Design in the Workplace

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Herzberg's Two-Factor Theory:
Campion and Thayer –
A Multidisciplinary Approach
to Job Design
Research on Job Design

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Kelly's Twin-Track Model of Job Redesign

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Job crafting: Towards a new model of individual job redesign

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Effect of Job Redesign on Employee Performance in Commercial Banks in Kisumu,
Kenya

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The JD–R model (Bakker & Demerouti, 2007; Demerouti, Bakker, Nachreiner & Schaufeli, 2001) assumes that every work
environment has its own unique characteristics that can still be captured in one overall model. Therefore, it is more flexible
and rigorous than previous job design models, such as the job characteristics model (Hackman & Oldham, 1976) and the
demand–control model (Karasek & Theorell, 1990).
More specifically, the JD–R model is a heuristic model that specifies how employee well-being and effectiveness may be
produced by two specific sets of working conditions. The first set of working conditions concerns job demands, which
represent characteristics of the job that will potentially evoke strain if they exceed the employee’s adaptive capability
(Bakker, Hakanen, Demerouti & Xanthopoulou, 2007). The JD–R model applies a broader view of job demands when
compared to Karasek’s demands, which are mainly quantitative in nature, such as workload and time pressure (Bakker,
Demerouti & Schaufeli, 2003). More specifically, job demands refer to those physical, social or organisational aspects of the
job that require sustained physical or mental effort and are therefore associated with certain physiological and psychological
costs (Demerouti et al., 2001). Examples are high work pressure and emotionally demanding interactions with clients. The
second set of working conditions concerns the extent to which the job offers resources to individual employees (Bakker
et al., 2007). Job resources refer to those physical, psychological, social or organisational aspects of the job that, (1) may be
functional in achieving work goals, (2) may reduce job demands and the associated physiological and psychological costs and
(3) may stimulate personal growth and development. Job resources are the main initiators of employees’ work engagement
and consequently of enhanced performance (Xanthopoulou, Bakker, Demerouti & Schaufeli, 2009).
Job resources may be located at the organisational level (e.g. pay, job security, career opportunities), at the
interpersonal level and that of social interactions (e.g. supervisor and co-worker support, team climate), at the level of
organisation of work (e.g. role clarity, participation in decision making) and at the level of the task (e.g. skill variety, task
identity, task significance, autonomy, performance feedback). Job resources have both intrinsic and extrinsic
motivational potential (Bakker & Demerouti, 2007). They are intrinsically motivating because they fulfil basic human
needs and foster individuals’ growth and development (Deci & Ryan, 2000; Van den Broeck, Vansteenkiste, De Witte & Lens,
2008). As extrinsic motivators they may be instrumental in achieving work goals.
The job demands–resources model

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Barrick, M. R., Mount, M. K., & Li, N. (2013). The theory of purposeful work behavior: The role of personality, job
characteristics, and experienced meaningfulness. Academy of Management Review, 38(1), 132-153.

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History of Work Design

9. Do Employee Attitudes Towards
Organizations Matter? The Study of
Employee Commitment to Organizations
Lyman W. Porter, Richard M.
Steers, and Richard T. Mowday

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Richard M. (Rick) Steers

University of Oregon
Lyman W. Porter
UC Irvine
Richard T. (Rick) Mowday

University of Oregon

The Study of Employee Commitment to Organizations

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Bowling, N. A., & Hammond, G. D. (2008). A meta-analytic examination of the construct validity of the Michigan
Organizational Assessment Questionnaire Job Satisfaction Subscale. Journal of Vocational Behavior, 73(1), 63-77.

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Brown, S. P. (1996). A meta-analysis and review of organizational research on job involvement.
Psychological bulletin, 120(2), 235.

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Employee Engagement

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Mehta, D., & Mehta, N. K. (2013). Employee engagement/ A literature review. Economia. Seria Management, 16(2), 208-215.

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Utrecht Work Engagement Scale

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A Taxonomy of Employee Well- Being

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Muthuveloo, R., & Rose, R. C. (2005). Typology of organizational commitment.
American Journal of Applied Science, 2(6), 1078-1081.

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Meyer, J. P., & Herscovitch, L. (2001). Commitment in the workplace: Toward a
general model. Human resource management review, 11(3), 299-326.

‹#›
Meyer, J. P., & Allen, N. J. (1991). A three-component conceptualization of
organizational commitment. Human resource management review, 1(1), 61-89.
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Meyer, J. P., Becker, T. E., & Vandenberghe, C. (2004). Employee commitment and motivation: a
conceptual analysis and integrative model. Journal of applied psychology, 89(6), 991.

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Meyer, J. P., Stanley, D. J., Herscovitch, L., & Topolnytsky, L. (2002). Affective, continuance, and normative commitment to the
organization: A meta-analysis of antecedents, correlates, and consequences. Journal of vocational behavior, 61(1), 20-52.

104
Meyer, J. P., Becker, T. E., & Vandenberghe, C. (2004). Employee commitment and motivation:
a conceptual analysis and integrative model. Journal of applied psychology, 89(6), 991.

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Meyer, J. P., Becker, T. E., & Vandenberghe, C. (2004). Employee commitment and motivation:
a conceptual analysis and integrative model. Journal of applied psychology, 89(6), 991.

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Klein, H. J., Molloy, J. C., & Brinsfield, C. T. (2012). Reconceptualizing workplace commitment to redress a stretched
construct: Revisiting assumptions and removing confounds. Academy of Management Review, 37(1), 130-151.

107
Klein, H. J., Molloy, J. C., & Brinsfield, C. T. (2012). Reconceptualizing workplace commitment to redress a stretched
construct: Revisiting assumptions and removing confounds. Academy of Management Review, 37(1), 130-151.

Conceptual Framework : The Commitment model

Defining Relational and Emotional Bonds

Satisfaction, Commitment and Engagement
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10. Developing Psychological
Contract Theory
Denise M. Rousseau

A Framework for Applying the Psychological Contact Guest (2004)
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The Result of The Psychological Contract and The Economic Contract
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The Employee Psychological Contact : Determinant and Outcomes
114

Psychological contact builds upon the concept of “exchange theory”
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Dadi, V. (2012). Promises, expectations,
and obligations–which terms best
constitute the psychological contract.
International Journal of Business and
Social Science, 3(19), 88-100.

Psychological Contracts and Economic Contracts
118

The Psychological Contract
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Psychological Contracts’ Iceberg Model
120

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Sels, L., Janssens, M., & Van Den Brande, I. (2004). Assessing the nature of psychological
contracts: A validation of six dimensions. Journal of Organizational Behavior: The International
Journal of Industrial, Occupational and Organizational Psychology and Behavior, 25(4), 461-488.

Assessment of Psychological Contract
122

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Atkinson, C. (2008). An
exploration of small firm
psychological contracts.
Work, employment and
society, 22(3), 447-465.

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Aggarwal, U., & Bhargava, S. (2009). Reviewing the relationship between human
resource practices and psychological contract and their impact on employee attitude and
behaviours: A conceptual model. Journal of European Industrial Training, 33(1), 4-31.

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Aggarwal, U., & Bhargava, S. (2009). Reviewing the relationship between human resource
practices and psychological contract and their impact on employee attitude and behaviours:
A conceptual model. Journal of European Industrial Training, 33(1), 4-31.

126
Aggarwal, U., & Bhargava, S. (2009). Reviewing the relationship between human
resource practices and psychological contract and their impact on employee attitude and
behaviours: A conceptual model. Journal of European Industrial Training, 33(1), 4-31.

127
Maguire, H. (2002). Psychological contracts: are they still relevant?. Career Development International, 7(3), 167-180.

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Conway, N., & Briner, R. B. (2009). Fifty years of psychological contract research: What do we know and what
are the main challenges. International review of industrial and organizational psychology, 24(71), 71-131.

131
Conway, N., & Briner, R. B. (2009). Fifty years of psychological contract research: What do we know and what are the
main challenges. International review of industrial and organizational psychology, 24(71), 71-131.

132
Conway, N., & Briner, R. B. (2009). Fifty years of psychological contract research: What do we know and what are the
main challenges. International review of industrial and organizational psychology, 24(71), 71-131.

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Anderson, N., & Schalk, R. (1998). The psychological contract in retrospect and prospect. Journal of Organizational Behavior: The
International Journal of Industrial, Occupational and Organizational Psychology and Behavior, 19(S1), 637-647.

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Anderson, N., & Schalk, R. (1998). The psychological contract in retrospect and prospect. Journal of Organizational Behavior: The
International Journal of Industrial, Occupational and Organizational Psychology and Behavior, 19(S1), 637-647.

11. The Escalation of Commitment: Steps
Toward an Organizational Theory
Barry M. Staw

136
An escalation situation occurs when an individual incurs costs in pursuit of a goal that is unlikely to be attained
no matter what future actions are taken (Staw, 1981).
If the individual follows this “failing” course of action and continues to allocate resources to it, he or she is
exhibiting escalation behavior (Whyte, 1991).
As Sleesman, Conlon, McNamara, and Miles point out in their Meta study: “One of the most robust and costly
decision errors addressed in organizational sciences has been the proclivity for decision makers to maintain
commitment to losing courses of action, even in the face of quite negative news” (Brockner, 1992).
(Self-Justiﬁcation Theory,Prospect Theory ,Agency Theory, Attribution
theory,Social identity theory)
Escalating Commitment
[the “sunk cost fallacy”] , Irrational escalation of commitment or
commitment bias

Escalation of Commitment
137

The Escalation of Commitment To a Course of Action
BARRYM. STAW
Barry M. Staw 138

PUTTING ESCALATION OF COMMITMENT IN CONTEXT: A MULTILEVEL REVIEW AND ANALYSIS
DUSTIN J. SLEESMAN1
,ANNA C. LENNARD, GERRY MCNAMARA and DONALD E. CONLON
139

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Escalation Of Commitment In MIS Projects: A Meta-Analysis
Mayur S. Desai, Texas Southern University,
USA Dmitriy V. Chulkov, Indiana University Kokomo, USA
The rational escalation model highlights the fact that some escalation is rational and is in the best interest of both the manager and the firm. The real
option theory and the bandit theory provide examples when project continuation is justified by the value of information and the value of flexibility that the
firm receives from continuing the project. The agency theory involves escalation that is rational for the manager, but not the firm. Reputation protection
and the attempt to escape lower compensation due to the termination of a project may lead the manager to continue a project after negative feedback
as long as there is informational asymmetry and the principal of the firm discovers the project status with some delay. Understanding of the incentives
behind rational escalation allows the firm to promote project management practices that are in the best interest of the firm.

141
Reducing Escalation of Commitment in High-Risk Investment Projects
An Empirical Study of Behavioral Accounting Activities in German Companies
Matthias D. Mahlendorf
emotion to work performance Whistle-blowing
Human fallibility
groupthink) less homogeneous
Framingand Loss Aversion Availability Bias Base Rate Problems
ORGANIZATIONS LIMIT RATIONALITY

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Prescriptions for Avoiding Escalation of Commitment
Actively seek disconfirming information about a chosen alternative (conformation bias).
Reframe losses as gains to prevent risk-seeking behavior (loss aversion).
Structure incentives so that decision makers are not punished for inconsistency (impression management).
Hand off decisions about whether to commit more resources to an investment to new decision makers
(personal responsibility).
Be careful not to consider expended resources when making decisions (sunk costs).
Make sure decision makers are frequently reminded of the goals of the investment (proximity to completion).
Factors that Influence the Risk of Escalation of Commitment
Personal Responsibility. Sunk Costs. Proximity to Completion. Exogenous Explanations for Failure Group Decision Making.
Prescriptions for Avoiding Escalation of Commitment

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The Irrationality of Rationality
Max Weber describes formal rationality as "the search by people for optimum means to a given end [that] is
shaped by rules, regulations, and larger social structures" (1993: 19).
The social mechanism by which such formal rationality is to be carried out is the bureaucracy. "Weber
viewed bureaucracy as the paradigm case of formal rationality" (1993: 20).
Ritzer also describes the precedents set in the economy that led up to McDonaldization. First, he mentions
the proclivity toward scientiﬁc management. Rationalization can be seen as essentially paradoxical.
The ‘rationale’ for rationalization, its a priori assumption, is that increased efﬁciency, predictability, and
calculability is akin to an increase in the ability of man to manipulate his environment, to adapt, to conquer
the chaotic elements of life ……… It is an effort to ……capitulate to institutionalized rational systems.
a conformist mass society the alternativerationalization is a process of isolation
irrational actions are those that have a weak coordination with reflective states and reflective forms of reasoning.
wishful-thinking, self- deception, weakness of will (akrasia)

144
Humans are born irrational, and that has made us better decision-makers
In the 1970s, two psychologists proved, once and for all, that humans are not rational creatures. Daniel
Kahneman and Amos Tversky discovered “cognitive biases,” showing that that humans systematically make
choices that defy clear logic.

But what Kahneman and Tversky acknowledged, and is all too often overlooked, is that being irrational is a good
thing. We humans don’t always make decisions by carefully weighing up the facts, but we often make better
decisions as a result.

Colloquially, “rational” has several meanings. It can describe a thinking process based on an evaluation of
objective facts (rather than superstition or powerful emotions); a decision that maximizes personal beneﬁt; or
simply a decision that’s sensible.

145
In 2001, economist Bryan Caplan wrote 'The Myth of the Rational Voter' in which he coined the term 'rational irrationality'. Caplan
said that 'people tailor their degree of rationality at the costs of error.' What this means is that when there is a low threshold of personal
cost in making a certain decision, people will forego inquiry and allow themselves to make an irrational choice
The Limits of
Rationality
a conclusion, that behavior may be considered irrational only from the point of outside observer - from the point of his preferences,
the notions about what "it should be".
Rational Ignorance versus Rational Irrationality
Bryan Caplan*

146

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