37: Organizational Decision Making under Uncertainty: Beliefs, Tastes, and Types (Ronald Klingebiel)

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Overview

Ronald Klingebiel reports on the implications for organizational learning of features of the kind of uncertainty found in strategy and organization. Such uncertainty comes in samples, varying degrees, and rarely alone. Decision makers appear sensitive to the statistical confidence (posterior probability that a choice is superior in expectation) that samples can afford as a decision criterion. They end up making more calibrated risky choices than they do in situations when outcome probabilities are fully stated, the workhorse of many a lab study. The inference from samples may explain a good chunk of the canonical description-experience gap that remains after other known explanations have been ruled out.

Uncertain prospects with samples also display different degrees of ambiguity (posterior variance of probabilities) to which lab participants appear sensitive. Many prefer moderate ambiguity and avoid the extreme kind, and their individual thresholds systematically characterise their ambiguity attitude across

sources, facilitating behavioral predictions.

Finally, uncertain organisational prospects rarely come alone. Resource-constrained decision makers select from a set of prospects and thus must choose between exposure to the downside of making errors of commission and omission. Either type can sink a business. When managers cannot avoid uncertainty but merely choose its type, predictions about such risky choices as funding an innovation project become less straightforward. In our lab work, we find that performance feedback helps predict which side decision makers prefer to err on, and where they accept or reject marginal outcome variation in response.

Required readings

Klingebiel, R., & Zhu, F. (2022) Sample decisions with description and experience. Judgment and Decision Making, 17(5): 1146-1175

Klingebiel, R., & Zhu, F. (2023) Ambiguity aversion and the degree of ambiguity. Journal of Risk and Uncertainty, 67(3): 299-324

Klingebiel, R. (2018) Risk-type preference shifts in response to performance feedback. Strategic Organization, 16(2): 141-166

Klingebiel, R., Joseph, J., & Machoba, V. (2022) Sequencing innovation rollout: Learning opportunity versus entry speed. Strategic Management Journal, 43(9): 1763-1792

Discussion questions

The behavioral decision-making literature identified various biases in a binary-choice paradigm with complete information about state-space likelihoods. Such findings have been invoked in organizational work. Which bias or finding would be particularly interesting to revisit in an ambiguous multi-choice paradigm that more closely reflects organizational challenges?

Applying theories of decision-making under uncertainty are complicated by an organizational trade-off: When learning decreases outcome uncertainty, it does so for competitors too, increasing preemption risks. Which predictions about managerial actions deserve reconsideration when uncertainty redistributes rather than reduces over time?

Organizations reject more than they accept, sometimes by several orders of magnitude. Accounting for exposure to the downside of omissions thus stands to qualify extant classifications of organizational behavior as uncertainty-seeking. Which organizational-literature predictions have found particularly mixed results and may be worth studying again with a fuller conception of uncertainty types?

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