Resource title

The Problem With Bounded Rationality - On Behavioral Assumptions in the Theory of the Firm

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I discuss and compare alternative approaches to integrating bounded rationality with the theoryof economic organization, concentrating on the organizational capabilities approach, which isstrongly influenced by the works of Nelson and Winter, organizational economics, particularlytransaction cost economics, and, finally, a small subset of the literature on biases to judgmentand cognition. I argue that, contrary to the conventional view, both the organizationalcapabilities approach and transaction cost economics treat bounded rationality rather “thinly,”the former being in actuality more taken up with organizational routines than individualboundedly rational behavior, the latter only invoking bounded rationality to the extent that ithelps explaining incompleteness of contracting. The rich literature on cognitive biases, etc.suggests a “thick” approach to bounded rationality that may be helpful with respect to furtheringthe theory of economic organization. Examples pertaining to the internal organization of firmsare provided.

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Nicolai J. Foss

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Resource language

eng

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application/pdf

Resource resource URL

http://hdl.handle.net/10398/7895

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