IDEAS home Printed from https://ideas.repec.org/a/bla/stratm/v42y2021i2p361-385.html
   My bibliography  Save this article

Exploration and exploitation in complex search tasks: How feedback influences whether and where human agents search

Author

Listed:
  • Stephan Billinger
  • Kannan Srikanth
  • Nils Stieglitz
  • Terry R. Schumacher

Abstract

Exploration and exploitation in strategic decision‐making entails decisions about whether and where to search for new alternatives to improve the status quo. Prior research has not explored how decisions about whether to continue search (vs. stop search or satisfice) and where to search (near vs. far) are interrelated. We report laboratory experiment results on how individuals decide whether and where to search in a complex, combinatorial task. We find that different feedback variables influence the decision to stop search from decisions regarding how broadly to search. Our results suggest that not accounting for the decision to continue (or stop) searching, separately from breadth of search, can lead to incorrect predictions regarding how feedback influences search behavior. Managerial Abstract Managers concerned about the performance of their company face two challenges—they have to find out what potential performance is feasible given their business environment and which organizational policies to implement to realize it. We use a stylized laboratory experiment to better understand how feedback from experimentation informs such a learning process. We find that early‐stage feedback has a lasting impact on performance aspirations and managerial expectations about feasible performance. Superior early feedback thereby motivates more sustained experimentation with organizational policies. In contrast, more recent feedback guides the extent to which managers are willing to engage in more radical policy adjustments, especially in the latter stages of a learning process.

Suggested Citation

  • Stephan Billinger & Kannan Srikanth & Nils Stieglitz & Terry R. Schumacher, 2021. "Exploration and exploitation in complex search tasks: How feedback influences whether and where human agents search," Strategic Management Journal, Wiley Blackwell, vol. 42(2), pages 361-385, February.
  • Handle: RePEc:bla:stratm:v:42:y:2021:i:2:p:361-385
    DOI: 10.1002/smj.3225
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/smj.3225
    Download Restriction: no

    File URL: https://libkey.io/10.1002/smj.3225?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jan W. Rivkin & Nicolaj Siggelkow, 2003. "Balancing Search and Stability: Interdependencies Among Elements of Organizational Design," Management Science, INFORMS, vol. 49(3), pages 290-311, March.
    2. Giovanni Gavetti & Daniel A. Levinthal & Jan W. Rivkin, 2005. "Strategy making in novel and complex worlds: the power of analogy," Strategic Management Journal, Wiley Blackwell, vol. 26(8), pages 691-712, August.
    3. Karynne L. Turner & Mona V. Makhija, 2012. "The role of individuals in the information processing perspective," Strategic Management Journal, Wiley Blackwell, vol. 33(6), pages 661-680, June.
    4. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    5. Theresa K. Lant, 1992. "Aspiration Level Adaptation: An Empirical Exploration," Management Science, INFORMS, vol. 38(5), pages 623-644, May.
    6. John D. Hey & Yudistira Permana & Nuttaporn Rochanahastin, 2018. "When and how to satisfice: an experimental investigation," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 5, pages 121-137, World Scientific Publishing Co. Pte. Ltd..
    7. Sunkee Lee & Philipp Meyer-Doyle, 2017. "How Performance Incentives Shape Individual Exploration and Exploitation: Evidence from Microdata," Organization Science, INFORMS, vol. 28(1), pages 19-38, February.
    8. Vibha Gaba & Henrich R. Greve, 2019. "Safe or Profitable? The Pursuit of Conflicting Goals," Organization Science, INFORMS, vol. 30(4), pages 647-667, July.
    9. Aurélien Baillon & Han Bleichrodt & Vitalie Spinu, 2020. "Searching for the Reference Point," Management Science, INFORMS, vol. 66(1), pages 93-112, January.
    10. MacLeod, W. Bentley & Pingle, Mark, 2005. "Aspiration uncertainty: its impact on decision performance and process," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 617-629, April.
    11. Jerker Denrell & James G. March, 2001. "Adaptation as Information Restriction: The Hot Stove Effect," Organization Science, INFORMS, vol. 12(5), pages 523-538, October.
    12. Sidney G. Winter, 2000. "The Satisficing Principle in Capability Learning," Strategic Management Journal, Wiley Blackwell, vol. 21(10‐11), pages 981-996, October.
    13. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
    14. Pankaj Ghemawat & Daniel Levinthal, 2008. "Choice Interactions and Business Strategy," Management Science, INFORMS, vol. 54(9), pages 1638-1651, September.
    15. March, James G., 1988. "Variable risk preferences and adaptive aspirations," Journal of Economic Behavior & Organization, Elsevier, vol. 9(1), pages 5-24, January.
    16. Ronald Klingebiel & John Joseph, 2016. "Entry timing and innovation strategy in feature phones," Strategic Management Journal, Wiley Blackwell, vol. 37(6), pages 1002-1020, June.
    17. Hoeffler, Steve & Ariely, Dan & West, Pat, 2006. "Path dependent preferences: The role of early experience and biased search in preference development," Organizational Behavior and Human Decision Processes, Elsevier, vol. 101(2), pages 215-229, November.
    18. Daniel A. Levinthal, 1997. "Adaptation on Rugged Landscapes," Management Science, INFORMS, vol. 43(7), pages 934-950, July.
    19. William M. Tracy & Dmitri G. Markovitch & Lois S. Peters & B. V. Phani & Deepu Philip, 2017. "Algorithmic Representations of Managerial Search Behavior," Computational Economics, Springer;Society for Computational Economics, vol. 49(3), pages 343-361, March.
    20. Zur Shapira & J. Myles Shaver, 2014. "Confounding changes in averages with marginal effects: How anchoring can destroy economic value in strategic investment assessments," Strategic Management Journal, Wiley Blackwell, vol. 35(10), pages 1414-1426, October.
    21. Hu, Yingyao & Kayaba, Yutaka & Shum, Matthew, 2013. "Nonparametric learning rules from bandit experiments: The eyes have it!," Games and Economic Behavior, Elsevier, vol. 81(C), pages 215-231.
    22. Simon, Herbert A., 1984. "On the behavioral and rational foundations of economic dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 5(1), pages 35-55, March.
    23. Armin Falk & Stephan Meier & Christian Zehnder, 2013. "Do Lab Experiments Misrepresent Social Preferences? The Case Of Self-Selected Student Samples," Journal of the European Economic Association, European Economic Association, vol. 11(4), pages 839-852, August.
    24. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
    25. Henrich R. Greve, 2007. "‘Exploration and exploitation in product innovation’," Industrial and Corporate Change, Oxford University Press, vol. 16(5), pages 945-975, October.
    26. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    27. Daniella Laureiro-Martínez & Stefano Brusoni & Nicola Canessa & Maurizio Zollo, 2015. "Understanding the exploration–exploitation dilemma: An fMRI study of attention control and decision-making performance," Strategic Management Journal, Wiley Blackwell, vol. 36(3), pages 319-338, March.
    28. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    29. Lee Fleming, 2001. "Recombinant Uncertainty in Technological Search," Management Science, INFORMS, vol. 47(1), pages 117-132, January.
    30. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
    31. Daniel G. Goldstein & R. Preston McAfee & Siddharth Suri & James R. Wright, 2020. "Learning When to Stop Searching," Management Science, INFORMS, vol. 66(3), pages 1375-1394, March.
    32. Schunk, Daniel, 2009. "Behavioral heterogeneity in dynamic search situations: Theory and experimental evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 33(9), pages 1719-1738, September.
    33. Mingyu Song & Zahy Bnaya & Wei Ji Ma, 2019. "Publisher Correction: Sources of suboptimality in a minimalistic explore–exploit task," Nature Human Behaviour, Nature, vol. 3(4), pages 407-408, April.
    34. John D. Sterman, 1987. "Testing Behavioral Simulation Models by Direct Experiment," Management Science, INFORMS, vol. 33(12), pages 1572-1592, December.
    35. Eriksson, Kimmo & Strimling, Pontus, 2010. "The devil is in the details: Incorrect intuitions in optimal search," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 338-347, August.
    36. Busemeyer, Jerome R. & Swenson, Kenneth N. & Lazarte, Alejandro, 1986. "An adaptive approach to resource allocation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 38(3), pages 318-341, December.
    37. O'Reilly, Charles A., III & Tushman, Michael L., 2013. "Organizational Ambidexterity: Past, Present and Future," Research Papers 2130, Stanford University, Graduate School of Business.
    38. Daniel A. Levinthal & James G. March, 1993. "The myopia of learning," Strategic Management Journal, Wiley Blackwell, vol. 14(S2), pages 95-112, December.
    39. Nils Stieglitz & Thorbjørn Knudsen & Markus C. Becker, 2016. "Adaptation and inertia in dynamic environments," Strategic Management Journal, Wiley Blackwell, vol. 37(9), pages 1854-1864, September.
    40. Seale, Darryl A. & Rapoport, Amnon, 1997. "Sequential Decision Making with Relative Ranks: An Experimental Investigation of the "Secretary Problem">," Organizational Behavior and Human Decision Processes, Elsevier, vol. 69(3), pages 221-236, March.
    41. Robert Heck & Oana Vuculescu & Jens Jakob Sørensen & Jonathan Zoller & Morten G. Andreasen & Mark G. Bason & Poul Ejlertsen & Ottó Elíasson & Pinja Haikka & Jens S. Laustsen & Lærke L. Nielsen & Andre, 2018. "Remote optimization of an ultracold atoms experiment by experts and citizen scientists," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 115(48), pages 11231-11237, November.
    42. Lori Rosenkopf & Atul Nerkar, 2001. "Beyond local search: boundary‐spanning, exploration, and impact in the optical disk industry," Strategic Management Journal, Wiley Blackwell, vol. 22(4), pages 287-306, April.
    43. Michael Shayne Gary & Robert E. Wood & Tracey Pillinger, 2012. "Enhancing mental models, analogical transfer, and performance in strategic decision making," Strategic Management Journal, Wiley Blackwell, vol. 33(11), pages 1229-1246, November.
    44. John Joseph & Ronald Klingebiel & Alex James Wilson, 2016. "Organizational Structure and Performance Feedback: Centralization, Aspirations, and Termination Decisions," Organization Science, INFORMS, vol. 27(5), pages 1065-1083, October.
    45. Lee Fleming & Olav Sorenson, 2004. "Science as a map in technological search," Strategic Management Journal, Wiley Blackwell, vol. 25(8‐9), pages 909-928, August.
    46. Mingyu Song & Zahy Bnaya & Wei Ji Ma, 2019. "Sources of suboptimality in a minimalistic explore–exploit task," Nature Human Behaviour, Nature, vol. 3(4), pages 361-368, April.
    47. Jan W. Rivkin, 2000. "Imitation of Complex Strategies," Management Science, INFORMS, vol. 46(6), pages 824-844, June.
    48. Papi, Mauro, 2012. "Satisficing choice procedures," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 451-462.
    49. Giovanni Gavetti & Jan W. Rivkin, 2007. "On the Origin of Strategy: Action and Cognition over Time," Organization Science, INFORMS, vol. 18(3), pages 420-439, June.
    50. Stephan Billinger & Nils Stieglitz & Terry R. Schumacher, 2014. "Search on Rugged Landscapes: An Experimental Study," Organization Science, INFORMS, vol. 25(1), pages 93-108, February.
    51. Thorbjørn Knudsen & Daniel A. Levinthal, 2007. "Two Faces of Search: Alternative Generation and Alternative Evaluation," Organization Science, INFORMS, vol. 18(1), pages 39-54, February.
    52. Giovanni Gavetti, 2012. "PERSPECTIVE—Toward a Behavioral Theory of Strategy," Organization Science, INFORMS, vol. 23(1), pages 267-285, February.
    53. Nicolaj Siggelkow & Daniel A. Levinthal, 2003. "Temporarily Divide to Conquer: Centralized, Decentralized, and Reintegrated Organizational Approaches to Exploration and Adaptation," Organization Science, INFORMS, vol. 14(6), pages 650-669, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiao, Shufeng & Tian, Xiaocong, 2023. "Performance feedback and location choice of foreign direct investment," International Business Review, Elsevier, vol. 32(4).
    2. Mittone, Luigi & Morreale, Azzurra & Vu, Thi-Thanh-Tam, 2022. "What drives innovative behavior?- An experimental analysis on risk attitudes, creativity and performance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 98(C).
    3. Jin Xu & Joep Cornelissen, 2023. "Disequilibrium and complexity across scales: a patch-dynamics framework for organizational ecology," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.
    4. Lingjuan Zhao & Kent Ngan-Cheung Hui & Feng Xiong & Yuxin Xia, 2023. "When and Why Do Innovation Policies Change? A Performance Feedback Perspective," SAGE Open, , vol. 13(1), pages 21582440231, March.
    5. Kannan Srikanth & Jaideep Anand & Mihaela Stan, 2021. "The origins of time compression diseconomies," Strategic Management Journal, Wiley Blackwell, vol. 42(9), pages 1573-1599, September.
    6. Vivek Tandon & Puay Khoon Toh, 2022. "Who deviates? Technological opportunities, career concern, and inventor's distant search," Strategic Management Journal, Wiley Blackwell, vol. 43(4), pages 724-757, April.
    7. Cheng, Lulu & Xie, En & Fang, Junyi & Mei, Nan, 2022. "Performance feedback and firms’ relative strategic emphasis: The moderating effects of board independence and media coverage," Journal of Business Research, Elsevier, vol. 139(C), pages 218-231.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stephan Billinger & Nils Stieglitz & Terry R. Schumacher, 2014. "Search on Rugged Landscapes: An Experimental Study," Organization Science, INFORMS, vol. 25(1), pages 93-108, February.
    2. Vivek Tandon & Puay Khoon Toh, 2022. "Who deviates? Technological opportunities, career concern, and inventor's distant search," Strategic Management Journal, Wiley Blackwell, vol. 43(4), pages 724-757, April.
    3. Oliver Baumann, 2015. "Models of complex adaptive systems in strategy and organization research," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 14(2), pages 169-183, November.
    4. Friederike Wall, 2016. "Agent-based modeling in managerial science: an illustrative survey and study," Review of Managerial Science, Springer, vol. 10(1), pages 135-193, January.
    5. Friederike Wall, 2023. "Modeling managerial search behavior based on Simon’s concept of satisficing," Computational and Mathematical Organization Theory, Springer, vol. 29(2), pages 265-299, June.
    6. Linda Argote & Sunkee Lee & Jisoo Park, 2021. "Organizational Learning Processes and Outcomes: Major Findings and Future Research Directions," Management Science, INFORMS, vol. 67(9), pages 5399-5429, September.
    7. Gatti, Corrado & Volpe, Loredana & Vagnani, Gianluca, 2015. "Interdependence among productive activities: Implications for exploration and exploitation," Journal of Business Research, Elsevier, vol. 68(3), pages 711-722.
    8. Oliver Baumann & Nicolaj Siggelkow, 2013. "Dealing with Complexity: Integrated vs. Chunky Search Processes," Organization Science, INFORMS, vol. 24(1), pages 116-132, February.
    9. Nicolaï Foss & Nils Stieglitz, 2012. "Modern Resource-based Theory(ies)," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 20, Edward Elgar Publishing.
    10. Juha Uotila, 2018. "Punctuated equilibrium or ambidexterity: dynamics of incremental and radical organizational change over time," Industrial and Corporate Change, Oxford University Press, vol. 27(1), pages 131-148.
    11. Helmut M. Dietl & Markus Lang & Eric Lucas & Dirk Martignoni, 2012. "Learning Through Inaccurate Replication," Working Papers 312, University of Zurich, Department of Business Administration (IBW).
    12. Madeline K. Kneeland & Melissa A. Schilling & Barak S. Aharonson, 2020. "Exploring Uncharted Territory: Knowledge Search Processes in the Origination of Outlier Innovation," Organization Science, INFORMS, vol. 31(3), pages 535-557, May.
    13. Sangyoon Yi & Thorbjørn Knudsen & Markus C. Becker, 2016. "Inertia in Routines: A Hidden Source of Organizational Variation," Organization Science, INFORMS, vol. 27(3), pages 782-800, June.
    14. Christina Fang & Jeho Lee & Melissa A. Schilling, 2010. "Balancing Exploration and Exploitation Through Structural Design: The Isolation of Subgroups and Organizational Learning," Organization Science, INFORMS, vol. 21(3), pages 625-642, June.
    15. Daniella Laureiro-Martínez & Stefano Brusoni & Nicola Canessa & Maurizio Zollo, 2015. "Understanding the exploration–exploitation dilemma: An fMRI study of attention control and decision-making performance," Strategic Management Journal, Wiley Blackwell, vol. 36(3), pages 319-338, March.
    16. Saemundsson, Rögnvaldur & Candi, Marina & Sigurjonsson, Throstur Olaf, 2022. "The influence of performance feedback and top management team orientation on decisions about R&D in technology-based firms," Technovation, Elsevier, vol. 113(C).
    17. Sai Yayavaram & Sasanka Sekhar Chanda, 2023. "Decision making under high complexity: a computational model for the science of muddling through," Computational and Mathematical Organization Theory, Springer, vol. 29(2), pages 300-335, June.
    18. Oliver Baumann & Nils Stieglitz, 2011. "Motivating Organizational Search," DRUID Working Papers 11-08, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    19. Stephan Leitner & Friederike Wall, 2015. "Simulation-based research in management accounting and control: an illustrative overview," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(2), pages 105-129, August.
    20. Friederike Wall, 2021. "Modeling Managerial Search Behavior based on Simon's Concept of Satisficing," Papers 2104.14002, arXiv.org, revised May 2021.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:stratm:v:42:y:2021:i:2:p:361-385. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/0143-2095 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.