Capability building and learning: An emergent behavior approach
AbstractEconomics-based models typically overlook management decisions and firms' capabilities. We develop a model that puts firms at center stage by simulating the aggregate behavior of a population of firms resulting from specific management decisions. The model features a learning process that produces changes in companies' capabilities. Decisions are made under imperfect information and bounded rationality, and managers may sacrifice short-term performance in exchange for qualitative variables that affect their firm's future potential. The model provides a structured setting in which these issues-often discussed only in an informal way-can be more rigorously analyzed. The simulations produce a variety of hard-to-anticipate emergent behaviors. Economic performance appears to be quite sensitive to managers' estimates of the true capabilities of their own firms. Also, companies that are willing to accept sacrifices in the short run in order to increase future potential appear to be more stable than the rest.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/952.
Length: 31 pages
Date of creation: 05 Mar 2012
Date of revision:
Capability building vs. economic performance; imperfect information; learning: bounded rationality;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-CBE-2012-05-22 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-05-22 (Evolutionary Economics)
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