Making decisions in a world of bounds : towards an integrative framework

University of Amsterdam Business School

MSc Business Administration - International Management Track

Master Thesis

Making decisions in a world of bounds: towards an integrative framework

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st

Supervisor:

Erik Dirksen MSc.

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nd

Supervisor:

Dr. Johan P. Lindeque

Student:

Kristina Feshchenko Morais

Student number:

10991883

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“If we understood our cognitive limitations in the same way

that we understood our physical limitations,

even though they don’t stare us in the face in the same way,

we could design a better world”

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1 _{Werhane, P., Hartman, L., Moberg, D., Englehardt, E., Pritchard, M., & Parmar, B. (2011). Social constructivism, mental models,}

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Statement of Originality

This document is written by Kristina Feshchenko Morais who declares to take full responsibility

for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources

other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion

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Acknowledgement

I would, first of all, like to thank my supervisor – Professor Erik Dirksen - who gave me a

chance to explore my interests and choose the direction of my research. It was of a great

motivation to know that I always received a support and constructive comments when needed.

Support was also given by Professor Dr. Johan Lindeque. He was open and available to

discuss particular research concerns when I sought his opinion. And it is thanks to his classes

that I was introduced to some of the main concepts of this study and decided to pursue this

direction of research.

I also gratefully acknowledge the help provided by the professor of Calgary University – Dr.

Liena Kano. She expressed no concerns and freely shared the unprinted version of one of her

articles at the beginning of my research journey. It had a profound contribution to my study.

I am indebted to all the participants for their wiliness to be a part of my research, for their

valuable inputs, patience, and interest that they have demonstrated in this study.

And last but not least, I would like to thank my family. Especially, my mom who always

supported me in all my beginnings and journeys. Her dedication to my education was always a

number one priority. She is my true inspiration of how the roles of a professional, a woman, a

friend, and a mother can be balanced in one’s life. And, of course, I would like to thank my

husband. He has been by my side during the whole program, and has given me all the support in

the world. His encouraging words always came in moments when they were so much needed.

Thank you for being so patient during this year. I am deeply grateful to have a friend, a mentor,

and a partner like you by my side.

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Abstract

To gain a better understanding and the role of decision-making bounds on

comprehensiveness of decisions, this study aimed at developing a practical framework for

managers’ use through the appraisal of potential bounds in their decision-making process. The

relevance of the research question is justified by the existing studies that outline the crucial

importance of decisions in the field of organizational studies and managerial behavior. Moreover,

several new developments in these fields present a great interest and importance for integrating

the existing knowledge into a clear model for decision-making bounds to be timely recognized and

safeguarded against. The study is based on the theoretical backgrounds of the following concepts

- bounded awareness, bounded rationality, and bounded reliability – and practical insights from

the business environment. Managers of different decision-making hierarchy and of different

industry and firm’s profiles were interviewed twice, generating a total of 20 interviews. The

findings indicate that the implementation of the proposed framework leads to an increased

awareness of potential decision-making process bounds and, as the result, more comprehensive

decisions. This paper ends with the implications of the research findings for the academic and

managerial fields and the directions for future research.

Keywords: Decision Making, Decision-making Process, Decision-making Bounds, Bounded

Awareness, Bounded Rationality, Bounded Reliability, Decision Hierarchy, Decision-making

Hierarchy.

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Table of Contents

Abstract

1 Introduction ...1

2 Theoretical Foundation ...4

2.1 Economic (normative) view of Decision-Making

...5

2.1.1 Transaction cost economics ...5

2.1.2 Bounded rationality ...6

2.1.3 Opportunism ...7

2.1.4 Bounded reliability...8

2.1.4.1 Facets of bounded reliability ...9

2.2 Psychological (descriptive) view of Decision-Making ...12

2.2.1 Bounded Awareness...15

2.2.1.1 Facets of bounded awareness ...16

2.3 Research Gap and Research Question ...18

2.4 Theoretical Framework ...20

3 Research Design ...25

3.1 The Participants’ Characteristics ...26

3.2 The Process of Data Collection ...27

4 Data Analysis ...31

4.1 General Analysis Routine ...32

4.2 First Round of Interview and Data Analysis ...32

4.3 Second Round of Interview and Data Analysis ...33

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5 Research and Discussion ...35

5.1 First Round of Interview and Results ...35

5.2 Second Round of Interview and Results ...42

5.3 Cross-round and Cross-case Analysis Results ...46

5.3.1 Proposition 1a ...46

5.3.2 Emotions ...46

5.3.3 Intentional and non-intentional behavior ...49

5.3.4 Decision-making hierarchy and decision-making bounds ...51

5.4 The Framework of the Decision-making Bounds – Final Results ...55

5.5 Overview of the Study Results ...56

5.6 Study Limitations ...57

5.7 Study Implications ...58

5.7.1 Theoretical implications ...58

5.7.2 Managerial implications ...59

6 Conclusion and Future Research Directions ...60

6.1 Concluding Thoughts ...60

6.2 Future Research ...61

References ...63

Appendices

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Index of Appendices

Appendix A. The interview cover letter ...71

Appendix B. The protocol of the first interview-round ...72

Appendix C. The protocol of the second interview-round

...73

Appendix D.1. The manual of the trial framework of the decision-making bounds – Part 1 ...75

Appendix D.2. The manual of the trial framework of the decision-making bounds – Part 2 ...77

Appendix E.1. The final framework of the decision-making bounds ...78

Appendix E.2. Simplified version of the final framework of decision-making bounds ...80

Appendices F.01-F.10 Transcripts of the first interview-round ...81

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Index of Tables and Figures

Figure 1. The three faces of bounded reliability ...11

Figure 2. Unified model of bounded reliability ...13

Figure 3. Conceptual model of bounds in decision-making process

...21

Figure 4. The design of the research process ...29

Figure 5. Node tree of the first interview-round analysis ...34

Figure 6. Node tree of the second interview-round analysis ...35

Figure 7. Word frequency cloud of the first interview-round analysis ...36

Figure 8. Conceptual model of bounds in decision making process: updated ...42

Figure 9. Matrix coding query based on decision hierarchy and decision-making bounds ...51

Figure 10. The likelihood of the occurrence of a decision-making bound based on decision

hierarchy ...52

Table 1. Characteristics of the study’s participants ...27

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Index of Acronyms

BAw

Bounded Awareness

BRat

Bounded Rationality

BRel

Bounded Reliability

DH

Decision Hierarchy

DM

Decision-making

DMB

Decision-making Bounds

DMH

Decision-making Hierarchy

DMP

Decision-making Process

MNE

Multinational Enterprise

SME

Small Multinational Enterprise

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1 Introduction

In an ideal world people make rational decisions. When a need to make a decision

overlaps with the business environment, where risks and stakes are higher, a chance of making a

fully rational decision is very small. Skinner (2009) identifies decision as a conscious and

irreversible resource allocation in order to achieve a desired objective. The scholar, however,

admits that if it can be reversible, the costs always come at play.

Many people fail to create an effective process for making decisions. People tend to

regret and rethink the decisions they made and the process they went through. This behavior

helps the decision maker to learn so the next decisions are made with fewer risks and less costs,

and, most importantly, so their decision-making process (DMP) improves. The reason for

undergoing such a process is because merely identifying and understanding one’s cognitive

limitations is frequently not sufficient to recognize and safeguard against. And often a process

like that one, or mental DM model (Werhane et al., 2011), brings to humans the awareness of

existent behavioral assumptions (authors) and cognitive bounds (authors). Consequently, as

argued by Werhane et al. (2011), it helps decision-makers to discover the means to prevent and

safeguard against decision-making bounds (DMBs), which is essential for comprehensive

decisions.

The importance of making more comprehensive and less-biased decisions varies from

manager to manager, organization to organization, and overall contextual differences. But,

overall, the mainstream literature supports the notion that unrecognized cognitive limitations in

DMP undermine organizational performance (Bourgeois, 1985; Dess & Keats, 1987; Barr &

Huff, 1997), cause a delay in firm’s response to the environmental fluctuations and alleged risks

(Starbuck, 1993; Barr, Stimpert, & Huff, 1992). And with the economy becoming progressively

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to have implications for another one, and, eventually, for a bigger part of society (Milkman,

Chugh, & Bazerman, 2009).

Study on decisions and DMPs, both in theory and practical fields, has proliferated

significantly in the last few decades. Managers, who are responsible for decisions and DMPs, are

increasingly becoming a vital factor in those studies. It is often their professional and human

capabilities that define the direction of research. What is known about the field of

decision-making (DM) is that it is present in economic and psychological studies. Economic research is in

this study is defined by the normative view which is based on the postulation that humans, in

their decisions, are not cognitively limited and their actions are rational. Presented by the

descriptive view, psychological research contends that humans do experience mental limitations,

and as the result fail to adhere to normative behavior.

A robust body of work exists on these deep-rooted and related perspectives; this study

aims to tie these perspectives in order to establish an integrative DM bounds framework that

managers and decision-makers, regardless their hierarchal levels, company and industry profiles,

can apply in order to reach more comprehensive decisions. These two views continue to

contribute to each other’s development but have not really been linked with the goal to create a

framework that could help managers to ease the process of DM. Thus, the purpose of this work is

to offer a crucial linkage and to show how this approach can enhance the managerial

understanding of DMP and lead to more comprehensive decisions.

Considering the recent developments in these fields, it is of a particular interest to explore

a DMP though a newly evolving concepts of Bounded Reliability (BRel) (Kano, 2013; Kano &

Verbeke, 2015; Verbeke, & Greidanus, 2009) and Bounded Awareness (BAw) (Bazerman &

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of Transaction Cost Economics (TCE), which includes another important element – Bounded

Rationality (BRat) (Simon, 1955, 1961, 1985). Together, normative view – represented here by

BRat and BRel – and descriptive view – by BAw - reflect on the bounds that managers face in

the DMP.

To answer the research question and achieve its objective a number of propositions were

raised based on theoretical implications. In order to validate the propositions, answer the

research question and reach the study’s objective, the qualitative research method was chosen

(Rynes & Gepart, 2004; Saunders & Lewis, 2013) and a multiple-case study with embedded

units of analysis was chosen for the research strategy (Yin, 2009). For a number of advantages

(Bailey, 2008; Gordon, 1975; Smith, 1975), interviews with semi-structured open questions

(Leech, 2002; Turner, 2010) were designed to collect the necessary data. Overall, several stages

of research design were identified.

The results of this study carry several theoretical and practical implications. In terms of

theoretical implications, this research unifies the existing knowledge regarding the field of BRel,

extends this concept by a new facet of BAw. Moreover, the study extends the concept of bounded

rationality based on the findings that most of interviewees refer to ‘professionalism’ as one of the

cognitive constraints in the DMP. Finally, this study brings the notion of behavioral assumptions,

specifically BAw, BRat, and BRel, together, and demonstrates how the interaction among them

can benefit business world. The developed framework of the DMP bounds brings significant

practical implications. Existing on multiple levels, such bounds offer a systematic approach to

managers seeking more comprehensive DMP. This work offers an original approach that can

evolve the DM and managerial behavior fields. It also evaluates and shows how this approach can

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process can be studied and trained for, and after this, be rooted into both conscious and

subconscious thinking (source). Given that decisions bring inherent risks, it becomes relevant to

recognise those DMB and attend to them with more care (Joy, 2000). It is defended that awareness

of potential DM bounds leads to a better comprehensiveness of those DMP, aiming at a risk

reduction.

Previous studies did not pay much attention to such variables as people’s, company’s,

and industry’s profiles. The topic was primarily covered from the perspective of high executives

and in the MNE context. However, managers, regardless of these moderators, face decisions and

DMP bounds. This study focuses on a sample population of different decision hierarchy (DH), a

number of industry and company’s profiles. In addition, it gives useful hints about the likely

behavior of other actors involved in DMP and suggests the forms of their biases. Finally, this

study provides an integrative conceptual model and DM framework for understanding the vast

and diverse body of the DMB literature

This paper begins by examining the theoretical backgrounds that are used to create the

theoretical framework of this research; It then describes the research design and strategy, giving

a special attention to how data was collected; the data analysis is presented; the following section

– results and discussion – is divided into three big sub-sections which represent each of the data

analysis stages, also includes a discussion on the limitations of this research and its future

theoretical and practical implications. Finally, this paper closes with the general conclusion of

the research and description of future research propositions.

2 Theoretical Foundations

The methods that issues are solved with and decisions are made of have been theorized and

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the process of DM. Looking at the broad literature, it is evident that the main streams of the field

of DM are generally split into economical and psychological perspectives. Conventionally, the

economic prospective accounts for the traditional economic theory explanation of human behavior

- normative view (Chugh & Bazerman, 2007), that is rooted in the assumption that human

cognitive ability is not constrained and is concerned with the best possible decision to be made.

The psychological perspective is grounded in a descriptive view of human behavior which

postulates that mental processes have their limitations that make normative behavior impossible

(Chugh & Bazerman, 2007).

This paper explores DM through the lens of TCE, specifically, through its recent

developments. It attributes TCE, with BRat as a part of it, to the normative view of decisions,

despite the fact that BRat is originally accounted for descriptive view as one’s cognitive limitation.

It is argued that recognizing behavioral assumptions of economical actors as ways to reduce costs

of doing business, the theory yet assumes that in doing so actors will aim at rational behavior and

at best decisions - which is what normative view of DM argues for. Through the psychological or

descriptive view this papers looks at the recently established concept of BAw that leads to useful

information being out of focus of a decision-maker. And being bounded by their awareness,

decision-makers fail to recognize the most optimal ways to make decisions.

This research is mainly focused on BRel and BAw as two novice and evolving concepts.

It is argued that their interaction, combined with BRat, can extend the knowledge of the

decision-making bounds and managerial DMP, consequently.

2.1 Economic (normative) view of Decision-Making

2.1.1 Transaction cost economics. Transaction Cost Economics, as proposed by

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in the management and organizational studies literature. It is used, mainly, to determine the most

effective and efficient governance form for a set of specific transactions conducted by

multi-national enterprises (MNEs) - it seeks to recognize the ways to minimize the costs of business

activities. One of the most resourceful ways to minimize such costs is to engage in an effective

decision-making process. Regardless of firms’ profiles (MNE, family firm, start-up, etc.) decisions

are made by humans who have certain limits on their capabilities and who adhere to their own

behavioral assumptions which are critical to theory construction (Verbeke & Kano, 2010). It is

therefore imperative to reflect on TCE’s behavioral assumptions when developing a model of

bounds on decision-making in business environment.

TCE is constructed on two behavioral assumptions: bounded rationality and opportunism.

By this Williamson (1985, p.32) implies that MNEs “organize transactions so as to economize on

bounded rationality while simultaneously safeguarding against the hazards of opportunism”. This

paper recognizes these concepts as relevant elements in a systematic DMP, however, has no

intention of providing a detailed clarification – for further information see Williamson (1981; 1985;

1996) and Simon (1955; 1961; 1985). Rather, this study focuses on the extended TCE theory - the

newly developed concept of BRel. In the following subchapters, after a brief depiction of BRat

and opportunism, the paper summarizes the exiting knowledge of the concept of BRel.

2.1.2 Bounded rationality. The concept of BRat emerged in the psychological field of

research but has progressed into economic theory term. It is worth mentioning, that it is due to its

accepted and gained credibility in the field of economics, that this study places BRat in the

economical normative perspective. The assumption of BRat suggests that the undergoing DMP

has often the intention to be rational, but only limitedly (Simon, 1961). That is to say that managers

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complex environment: multiple, possibly conflicting, objectives and choices; the available

information and experiences; mental capacity and time restrictions (Dequecch, 2001; Eisenhardt

& Zbaracki, 1992; March, 1978; Verbeke & Kano, 2013). In his work Williamson (1985) implies

that had rationality not been bounded it would have been feasible to anticipate all future scenarios

and guarantee the completion of contracts between economic actors allowing, consistently, the

most effective and efficient decisions.

Albeit it is hardly possible to challenge the importance of Simon’s BRat theory, some

suitable critiques took place. Namely, Foss (2003) argues that, despite its broad acceptance in the

field, the notion of BRat may have declined: this could be attributed to the incomplete absorbency

in the organizational economics, which may have led to BRat carrying a more rhetorical meaning.

In addition, the absence of profound clarifications of what it actually is and its rather negative

definition may have created the situation when BRat is “much cited and little used” (Foss, 2003,

p. 256). Being so, there is a risk that BRat remains only as a foundation to a theory, and has no

empirical application.

2.1.3 Opportunism. Williamson (1981, p.1545) defines opportunism as “self-interest

seeking with guile [with] calculated efforts to mislead, distort, disguise, obfuscate or otherwise

confuse”. It is classified into ex-ante (before the event) and ex-post (after the event) (Williamson,

1981, 1985). Independently of its type, opportunism leads to information asymmetry, which results

in the complication of relations among actors. Under these conditions, Williamson (1985) sees

opportunism as the main factor for firms’ existence. Without it, markets on their own would be

able to manage most of the economic transactions. It can, hence, be added that the profession of

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However, it is worth acknowledging that despite its renowned contribution to the field of

economic studies, opportunism is criticized in a number of studies (Ghoshal & Moran, 1996; Kano,

2013; Kano & Verbeke, 2015; Tsang, 2006; Verbeke & Greidanus, 2009; Verbeke & Kano, 2012).

Main criticisms on Williamson’s opportunism include its tapered conceptual emphasis, inadequate

depiction of actuality, and scarcity of sufficient empirical backing. In addition to these, this paper

outlines another criticism - a failure to recognize failed commitments as benevolent matter. The

negative meaning of ‘opportunism’ as a definition subjects individuals to not see beyond the

malevolent nature of economic actors’ actions. Thus, from the start, the possibility of its presence

undermines the successful contract fulfillment. Equally, this strongly negative definition may have

been the reason for biasing the initial interpretation of failed commitments by Williamson himself.

Consequently, earlier or later, the academic society would have felt the need to look beyond

opportunism, which eventually resulted in the concept of bounded reliability.

2.1.4 Bounded reliability. Until a few years ago opportunism was considered to be the

main reason behind the failed commitments in the contractual relations. Recent developments in

the field of organizational behavior have led to the envelope concept of bounded reliability. BRel,

first introduced by Rugman and Verbeke (2005), is presented as one of the constraints of

management process inside firms. Communicated (or realistically anticipated) promises to

accomplish a particular outcome do not always result accordingly, primarily due to the “scarcity

of effort to make good on open-ended promises” (Verbeke, 2013, p. 57). Important to mention is

that BRel excludes elements not-dependable on people such as technical issues, unpredictable

environmental change and similar (Verbeke & Greidanus, 2009). The scholars use this concept in

contrast to opportunism of Williamson arguing that the opportunism implies that actors fail in their

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BRel builds upon the observations that actors can also fail in commitments due to reprioritization

and changes in the environment. Shortly, the idea behind the concept of BRel is that actors break

the agreements not necessarily due to purposeful bad intentions and strong self-interests.

In the highly contextual environment that MNEs operate in and manage the challenges

risen from ‘distances’ (cultural, administrative, geographic and economic; Ghemawat, 2001)

Verbeke & Kenthworty (2008) identify BRel as one of the key drivers of business decision; given

that BRat and a favorable organizational context for knowledge management and innovation are

the remainder two drivers.

2.1.4.1 Facets of bounded reliability. Recognizing these implications and the need for

unconventional explanations of human’s non-fulfilment of commitments, Verbeke and Greidanus

(2009) conduct a deep study and unfold this concept of BRel further. The authors complete the

research using 30 case studies of nine global MNEs identified by Rugman and Verbeke (2004).

Drawing exclusively on the recognized case producers and distributors, Verbeke & Greidanus

(2009) focused on underpinning purposes of managerial decisions and commitments. Their

research resulted in isolating three bounds on (facets of) managers’ reliability and several examples

of safeguards against the potential issues of BRel.

In addition to Williamson’s opportunism as intentional deceit, the model recognizes

benevolent preference reversal associated with reprioritization and benevolent preference

reversal associated with scaling back on overcommitment. Benevolent preference reversal

associated with reprioritization implies to cases when managers make ex ante commitments with

benevolent intention but the importance of these commitments weakens within the time (Verbeke

& Greidanus, 2009) either due to one’s reversal over time (Tversky, Slovic, & Kalmeman, 1990)

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on overcommitment refers to situations when made ex ante commitments had to be personally

revised and scaled back ex post (Verbeke & Greidanus, 2009). It is important to restress that unlike

opportunism, the new bounds are not intentional and are made in good faith. But, ultimately, three

of these facets present undesirable (dysfunctional) consequences for a firm (Verbeke & Greidanus,

2009) leading to increased transaction costs.

The cutting edge paper of Verbeke and Greidanus (2009) initiated a new wave of research

in the field of organizational studies and managerial behaviors. The grown interest and much of

attention to BRel (Chua, Chrisman, Steier, & Rau, 2012; Eddleston, Chrisman, Steier, & Chua,

2010; Kano, 2013; Kano & Verbeke, 2015; Verbeke & Kano, 2010; Verbeke & Kano, 2012;

Zargarzadeh & Leroy, 2013) have led some researchers to unfold new facets of this envelope

concept. Kano (2013) undertakes a new research and extends the original work of Verbeke and

Greidanus (2009) suggesting a supplementary facet of bounded reliability – identity-based

discordance. According to the research findings based on the Alfred Chandler’s case of Du Pont

history, identity-based discordance happens when contracting parties enter into commitments

having one vision of “what is promised”; within time the misperceived differences arise from the

ignition vision and “what one represent” at current moment (Kano, 2013; Kano & Verbeke, 2015).

This new facet, similar to benevolent preferences reversal, stems from good-faith commitment

non-fulfilment. The difference, however, lies in no ex-post shift, or alterations, of such

commitments (Kano, 2013; Kano & Verbeke, 2015). Kano’s research shows that identity-based

discordance can both be instigated by regression (refers to the resistance to change) and divided

engagement (occurs to poorly coordinated goals, information flows, processes and routines). The

researcher further outlines that regression, or resistance to change, is caused by narrow- or

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Figure 1. The three faces of bounded reliability

learning” (Kano & Verbeke, 2015, p. 109) managerial practices being subjected to the old ways of

doing things. On the contrary, the right-minded regression depicts the sincere belief that those ‘old

ways’ were better and, thus, the implementation of the ones is, in some way, sabotaged but with

no malevolent intent (Kano, 2013; Kano & Verbeke, 2015). To illustrate, Figure 1 depicts the

model of bounded reliability concept as presented in the scholar’s works.

*Source: Kano, 2013; Kano & Verbeke 2015

These new findings propelled a new wave of research in this direction. Zargarzadeh and

Leroy’s study of General Electric Company (2013) reveals an additional facet of BRel - benevolent

information distortion (deception). It assumes that humans tell lies to be polite, to guarantee a

smooth social interaction, or to look after another person’s feelings (Argo, Dahl & White, 2011;

Argo & Shiv, 2012), thus failing to fulfill commitments out of their good faith. In the business

setting that means that actors involved in a relationship and aiming at having a favorable business

Opportunism Benevolent Preference Reversal Overcom-mitment Repriori-za on Regression Divided engagement Iden ty-Based Discordance Ex-ante Ex-post Bounded Reliability: Bounds on a manager’s reliability to fulfill commitments

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climate may avoid revealing the truth. And this behavior results in unnecessary costs of business

activities.

To conclude, this section has confirmed the increasing importance of BRel and its

relevance to the managerial decision-making process. This helps to understand the problem of

failed commitment in a more profound way. As argued by Verbeke & Greidanus (2009), to avoid

potential risks and misjudgments in relationships, it is important that managers understand that

this concept does not solemnly relate the deeds of actors to malevolence; such deeds can, more

reasonably, be justified by good-faith actions. Recognizing the need for differentiation between

intentional (guile seeking) and non-intentional behaviors as potential causes of failed commitments,

this paper builds a unified model of BRel (see Figure 2).

Subjected to a number of bounds in the business activities, economic actors are, above all,

human beings. Human beings who have their personal cognitive constraints. These constraints (or

cognitive abilities) can be associated with a number of factors: brain functions, personal

experiences, contextual environment, to name a few. Thaler (2000) argues that individuals are

quite different from what classical economic theory foresees. That is, using strictly economist’s

normative view of DMP – although also grounded on human behavioral assumptions – not only

limits the understanding of the process, but also withdraws the second main descriptive account of

human DM. Given the above, the following section unfolds the psychological perspective of DM

and seeks to emphasize its most significant, as argued, concept of business DM.

2.2 Psychological (descriptive) view of Decision-Making

In the last 50 years, psychologists have advanced the understanding of the ways in which

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Figure 2. Unified model of bounded reliability *

*Source: Author

Note: This model is constructed based on the latest theoretical developments in the field of BRel. This study, as argued in the text, for the clarity of potential BRel causes differentiates them between intentional and non-intentional.

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businesses, governments, and understanding how to make these outcomes less biased brings

multiple benefits to our society. A number of scholars (Chugh & Bazerman, 2005; Chugh,

Bazerman, & Banaji, 2005; Thaler, 2000) have introduced several concepts that are perceived to

limit DM. Specifically, bounded awareness, bounded ethicality, bounded willpower and

self-interest.

This research focuses its attention on the concept of BAw, endorsed by Bazerman and

Chugh (2006a, 2006b). It touches upon one of the main variables needed for a decision making -

information. Similar to BRat it emerged in the psychological literature, and is gaining importance

in the economy field. The scholars establish this term with the relation to attention-to-information

issue and its limit on human awareness in a DMP. The importance of attention to the information

has never been more pressing than in today’s environment when the “the amount of information

[due to technological developments] scales faster than the attention of human decision makers”

(van Knippenberg, Dahlander, Haas, & George, 2015, p. 650). It is, therefore, not the information

scarcity but the attention scarcity due to the information overload, that bounds and challenges

decision-makers (van Knippenberg et al., 2015) - decision-makers are aware of information, but

only boundedly so.

There is an array of interpretations that should be drawn from the available information.

Ideally, this abundance should be a means to an effective decision-making; given, of course, that

an actor makes decisions based on all in fact available information. But how can one make a

truly comprehensive decision if the information that is thought to be exhaustive is in reality not?

It may be argued that recent outstanding technological progress may have reduced this issue of

BAw, or has a potential to do so. However, this paper sees BAw issues mainly related to the

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and the problem persists. The situation becomes even more challenging because technology can

increase the problem of BAw. With all the data circulating in emails, web pages, social media,

customer- and partner-related sources, among others, the information’s volume and velocity

makes it at times impossible to know what important and what is not (van Knippenberg et al.,

2015).

2.2.1 Bounded Awareness. Based on the conclusion of social science research, that at

times decision-makers ignore certain information without realizing it, Bazerman and Chugh

(2006a; 2006b) examine the phenomena of BAw in context of negotiations and decision-making

and provide evidences of how failure to recognize easily available information can lead to

disruptive outcomes. BAw describes the “cognitive limitations that prevent humans to see, seek,

use and share highly relevant, easily accessible, and readily perceivable information during the

DMP” (Bazerman & Chugh, 2006b, p. 90). Providing a number of examples scholars debate on

the main reasons for bounded awareness, that herein after are referred to as facets of the BAw

concept.

In the following section the reasons for humans’ bounded awareness are described.

However, it should be mentioned that this paper uses more simplified language to describe them

from the work of Bazerman and Chugh (2006b) as opposed to other papers of these scholars written

on this subject. For example, they use such categories as “inattentional blindness”, “change

blindness”, “foculism and focusing illusion”, “bounded awareness in groups” (Chugh & Bazerman,

2007). The choice to use a more simplified language is justified by one of the objectives of this

research - that is to create a framework for managers. And adapting such approach, most certainly,

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2.2.1.1 Facets of bounded awareness. Numerous psychological processes, such as

“perception, attention, and cognitive reasoning” (Chugh & Bazerman, 2007, p. 3), lead humans to

their bounded awareness. For example, when people focus on specific tasks, they often tend to not

see beyond them. And that is when failure to see information emerges. By focusing on a particular

object, or task, humans overlook the information they are not expecting. In their work Bazerman

and Chugh describe the example of the woman walking across the basketball field during the game.

Participants of the research were given a task to count a number of passes between two teams

playing on a video. Their focus on the ball and passes has led to their ignorance of the woman’s

presence. However, those who watched a video without such a task, were easily able to see the

woman. Authors assert their concern regarding these results because managers should be able to

stay alert to marginal dangers and chances, as well as stay focused on their daily job. Thus, failure

to do so may prevent them from developing the strategies sufficient for their companies thriving.

Another course for BAw is the failure to seek information. Describing the tragic Challenger

space shuttle case, researchers demonstrate how managerial failure to “go extra mile” for more

information can bring some catastrophic results, especially, if decision-makers favor a certain

outcome. In the Challenger case, since the decision regarding the launch of the shuttle under cold

weather conditions had to be made, executives disregarded the possibility of a connection between

low temperatures and O-ring failure (Kumar & Chakrabarti, 2012). Had they wished to seek for

additional information, they would have found out that with the 99% probability low temperatures

cause O-ring failure (Bazerman & Chugh, 2006a; 2006b; 2007). They simply did not want to find

a confirmation that could have led to a not-favored decision, as argued by scholars.

At the same time, with the accessible and valuable information at their hands, managers

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Citibank in Japan, when the bank’s managers had the evidences of other market players “wrong

policies” that led the latter ones to losses and punishments from the Japanese government. This,

however, made no difference in the decisions Citibank executives made. In the end, this failure to

use the information resulted in the bank’s license revocation by the government and the bank’s

reputation damage. What happened in this case is that the executives were too much focused on

the financial performance, which, eventually, caused the bounded awareness. In addition,

executives’ previous success and failure to account for competitors’ actions and capabilities can

become blinders and “hide” easily available and ready to use information.

For a manager to make a decision, in most cases, means to depend on information provided

by other actors involved; whereas the latter ones very often depend on this very manager’s prior

ability to share known data. The process of making a decision happens in a group of people,

members of which are expected to share information which is, generally, meant to increase the

quality of solutions as opposed to those made individually (Mesmer-Magnus & DeChurch, 2009).

Yet the studies suggest that most of the team members tend to experience cognitive blinders and

fail to share the information not known to the rest members, and only discuss among themselves

what is known to all. When this happens, managers, as the result, fail to seek unique information

from others, as argued by Bazerman and Chugh (2006a; 2006b; 2007). In their work they describe

a case when, in a group of decision makers, a few individuals were given a typically important

information that could have changed the decision outcome. But when the discussion started, these

members simply failed to share the known facts and only discussed what was known to all.

Individuals, similar to organizations, demonstrate biases related to their attention to

information and in their conclusions based on that information (van Knippenberg et al., 2015).

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a more comprehensive decision making. The scholars, that help understand the awareness’

bounds and move past them, also provide a different angle to look at DMP. They address the

straightforwardness of BAw and the simplicity of its recognition and safeguarding. However, it

delimits the holistic understanding of DM because so far, it has only been studied as a

stand-alone phenomenon related to managerial behavior in DMP.

2.3 Research Gap and Research Question

The empirical and theoretical determinations in the past few decades have brought the

business and academic society closer to an understanding of decision-making processes. As March

(1978, p. 591) argues such “understanding is organized in a set of conceptual vignettes rather than

a single coherent structure; and the connection among the vignettes are tenuous”. This statement

emphasizes the importance of looking at the DMP through a holistic approach in which

connections among two perspectives can prove the vagueness of their borders.

Since professional managers face countless decisions in their career, it is important to

acknowledge the intricacies and traps involved in DMP. But it seems that there is nowhere in the

literature a complete and concise framework that decision-makers can follow to recognize these

bounds. Although TCE theory, specifically BRat and BRel concepts, have helped to understand

the problem of DM bounds, there is still a need for additional research given that neither assumes

the failure to actually see, seek, use or share already available information. Therefore,

completing the statement of Verbeke and Kenworthy (2008) that along with BRat senior

managers must monitor and diminish the effects of BRel as well, this papers argues, that

additionally, it is equally important to monitor and diminish the effects of BAw. In a search of a

fresher and profounder perspective, it is proposed to look at how the normative and descriptive

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unify in an integrative framework of bounds in decision-making.

Most of the research regarding managerial decision making is represented by top-managers

in the context of MNEs, overlooking the existing cross-context (types of firms, industries) and

different levels of managerial seniority in examination of these bounds. But as argued by

Brousseau, Driver, Hourihan, and Larsson (2006), above all, the job of a manager is to make

decisions, and “managers at all levels must play the role of [a] decision maker” (p. 111). The only

peculiarity, as the scholars imply, is the difference in ways the DMP is approached based on the

hierarchical level; it changes as a manager moves up in the organizational hierarchy. Therefore, in

order to undertake a more robust research, this study focuses on decision-makers of different DM

hierarchy, working and operating across various types of industries and firms. Regardless of the

inputs of these variables, managers are determined to make the most comprehensive choice.

Therefore, the main question of this research is the following: How can managers, aiming at more

comprehensive choices, appraise potential bounds in their decision-making process?

Werhane et al. (2011) imply that to achieve more comprehensive decisions, individuals

should adhere to a mental decision-making model that can guide them to access or gather

information, leading to fewer errors (costs). Of course, one can argue that this, in its turn, leads

to information overload, more time, and processing obtained information only increases it (van

Knippenberg et al., 2015). And even then, there is no assurance of decisions’ correctness and

costs reduction. But this paper seconds the opinion of Werhane et al. (2011) and argues that,

when the decision-making model comes on cognitive thinking, given it is a good-practice model,

the process comes naturally. It is on this stage when the more information managers have in their

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research question, this paper’s objective is to create an integrative DM bounds framework as an

example of a good-practice model for managers to follow in their DMPs.

And in order to answer the research question and achieve the study’s objective, it is

necessary to construct a theoretical base and study’s propositions. The next section provides

theoretical foundations to the propositions made by this study and, based on this, builds a

conceptual model of a comprehensive DM process.

2.4 Theoretical Framework

Crossing economic and psychological views will lead to extended behavioral assumptions

of DMP providing a more complete outlook on its bounds. Not only can it lead to more a

comprehensive choice, and possibly to more effective decisions; but also facilitate a more

complete justification of relevant strategic choices in an organizational behavior. This paper

argues that BRat, BRel and BAw are the lenses that managers should look through when facing

business decisions, regardless of the possible moderators: place, people (managerial seniority), or

profile (company’s characteristics). Figure 3 presents the conceptual model of how these bounds

can be integrated in DMP.

On daily basis a manager receives all sorts of information related to firm’s business

activity. And failure to recognize this information, or being subjected to cognitive biases, can

lead to managerial perception supplanting the real stimulus in DMP (Santos & Garcia, 2006).

Owing to this, BAw is placed at the top of the model. Then, BRat concept is placed on the

second level, because, as inferred, it depends on decision-maker him/herself to realize these

cognitive limits. Only then, will the decision-maker be able to fully acknowledge the BRel

issues. For example, if managers are bounded by time constraints or previous experiences with

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Figure 3. Conceptual model of bounds in decision-making process *

*Source: Author

Better awareness of actors signifies a wider scope of information resulting in a better

awareness of the potential BRat and BRel issues. In other words, managers acknowledge these

issues better, once they have acknowledged the BAw issues, otherwise, as Bazerman and Chugh

(2006a; 2006b; Chugh & Bazerman, 2007) state these incomplete constructs lead to missing the

most necessary for an effective decision information. Thus, BAw in itself is the lens through

which managers become more aware of not only their potential failure to obtain the available

information, but also acknowledge the other bounds of DM. Extending the thought of Verbeke

and Kano (2013) regarding the interrelationship of BRel, BRat, and opportunism, this study

argues that human actors engaged in economic transactions may fail to make the best possible

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sharing capabilities only. Therefore, despite the attention priority assigned to these concepts

earlier, the three of them remain to be equally important for a decision maker, and should be

thought of concurrently. Based on these grounds, the following propositions are to be evaluated

by this research:

Proposition 1a: Bounded awareness is the primary and foremost important bound to be

recognized and addressed by managers.

Proposition 1b: BAw, BRat, and BRel play an equally important role in DMP, and should

be evaluated concurrently.

Tannenbaum (1950), in his work on managerial decision-making, postulates that it is

possible for one individual to provide information which can affect a decision of another.

Regardless of the results, one may be dependent on the correctness of such information. Hence,

this research paper claims that BAw, along with being a stand-alone (1

st

_{degree) limit on DMP,}

can also be a factor that makes other actors less reliable. In line with this thought, Bazerman and

Chugh (20066, p. 93) point out that “executives must rely on others to streamline the data flow for

them”, therefore failure to recognize easily available information also limits the correctness and

reliability of those involved in the process and responsible for streaming the data, be that for

executives or not. In other words, in the first case, it is the manager him/herself that is boundedly

aware, and in the second – other actors involved in his/her DMP. Summarizing the arguments, it

is proposed that BAw can be an additional facet of BRel. For the purpose of differentiation, it is

called BAw 2

nd

degree. Consequently, the next step is to identify which of the categories of BRel

– opportunistic or benevolent – this new facet belongs to. Bazerman and Chugh (2006a; 2006b;

Chugh & Bazerman, 2007) highlight that BAw can result from a simple failure to see ‘at hands’

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information, what they also call “inattentional blindness”. For that reason, this study attributes

BAw to a benevolent behavior.

Placing BAw under non-intentional bounds of BRel, raises a question of similarity between

BAw and benevolent information distortion. Both of these facets diminish ones reliability in not

providing available information out of good will. However, in the latter one, an actor actively hides

it; whereas, in the former one, an actor simply fails to recognize it. And in case of failed sharing,

an actor does not consider its relevancy. To summarize:

Proposition 2a: Bounded awareness in itself can present in itself a bound on both personal

managerial level; as well as on the level of other actors involved in DMP.

Proposition 2b: In both cases BAw is attributed to a nonintentional behavior.

This way, BRat reflects the scarcity of mind, BRel – scarcity of effort to make good on

open ended promises (Verbeke & Kano, 2013), then BAw reflects the scarcity of attention to see,

seek, use, and/or share information. If an actor fails to pay sufficient attention to the

surroundings, he/she also fails to recognize the need for more information and better use, or

share, of it. It must be stated here, that BAw could, indeed, be associated to BRat. However, this

study, in agreement with Chung and Bazerman (2007), separates these two concepts. The

scholars attribute it to different research directions. That is, in their view BRat work “focuses on

imperfections in the integration of data” (2007, p. 16) in DMP, resulting in missed opportunities

to see other characteristics of decision perfection. The present study bases its argumentation

proceeding from the definitions of both concepts. In particular, BRat implies that actors due to

their cognitive constraints make decisions based on the limited information regarding possible

alternatives and/or consequences (Verbeke & Kano, 2012). Whereas, BAw is about any

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recognized; since it can prove to be relevant to a certain degree. Finally, in case of BRat a

decision is limited by the information that actors essentially possess; while, in case of BAw it is

by the actual lack of information that is attributed to the failure to see, seek, use and share it.

Therefore, stemming from this argumentation, BRat and BAw are presented here as two separate

concepts.

This framework accommodates the normative elements in choice (BRat & BRel,

respectively), stressed by economics, and the descriptive elements (BAw) which, by its nature,

normally, concern psychologists. Decision-makers depend on others to have data, however, with

training and realization of how those data can be broader, and how to ensure to not fall in the

pitfalls of scarcity of information, cognition and reliability, they can avoid the perils of DM.

Thus, it is not argued that such framework will necessarily lead to a change of decisions. Rather,

it is proposed that managers will have more comprehensive choices through the recognition of

those behavioral alternatives which should be done before making a decision (Tannenbaum,

1950). Based on the above, the following proposition is made:

Proposition 3: Acknowledgment of potential bounds on DMP leads to more

comprehensive choices.

To summarize, the conceptual model, proposed in Figure 3, demonstrates the interrelation

among the studied bounds of DMP. As stated above, information is positioned at the top of the

model to serve as lens through which one can evaluate the information needed for a DM itself

but also to reflect on other potential bounds. At last, all the bounds in DM should be considered

as equally important and interact on any level. Changes in the perception of one can change the

awareness of another. This is demonstrated by the solid line arrows (see Figure 3). In respect to

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can switch from one behavior to another. Given that it is hard to study the accuracy of

managerial perceptions (Mezias & Starbuck, 2003; Starbuck & Mezias, 1996), validating this

linkage is not feasible. This research attributes it to a number of reasons: firstly, asking managers

to directly reflect on their behavior as opportunistic or not will not generate credible results.

Secondly, asking managers to estimate, in a similar way, the behavior of other actors involved in

the DM, will also not generate reliable data. To begin with, managers would not know this

information for a fact, and, in addition, would, most likely, tend to believe that all behavior is

opportunistic. Therefore, this study only infers that a change from opportunistic behavior to

benevolent, and vice versa, can occur. This relationship is demonstrated by the dashed line

arrow.

Next section describes the methodology used to evaluate the propostions outlined by this

research. The sections begins with the general information of the research design, it further

provides the characteristics of participants and concludes with data collection description.

3 Research Design

The ability of qualitative research to provide better insights than quantitative and

understandings of real-life company situations and management issues (Rynes & Gepart Jr, 2004;

Saunders & Lewis, 2013) served as key criteria for choosing this methodology. For a deeper

exploration, the multiple-case study with embedded units of analyzes (Yin, 2009) was identified

as the most appropriate research strategy. Meaning, managers and their behavior regarding the

decision-making process are the units of analysis of an individual case; and the study as a whole

covers a number of companies which represent multiple cases. Such approach will outline

similarities and differences in behavior patterns of multiple units of analysis which, in its turn, will

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3.1 The Participants’ Characteristics

In order to discover collective interpretations of managers, viewpoints derived from a varied

managerial context were sought. Diversification of decision-making hierarchies, companies'

profiles and industries assured heterogeneity and the most variation in the data, and, hence,

study’s construct validity (Gibbert & Ruigrok, 2010, p. 713). And as argued in theoretical part of

this study, independently of the level, managers face DM issues daily, thus, participants were

selected based on their decision making hierarchy (DMH). Decision hierarchy (Deboys, 2004;

Joy, 2000) is divided into operational, tactical, and strategical. In other words, managerial role in

DM varies from those related to daily activities with short-term targets and on the lower level of

management to those related to practices on the middle level of management and to long-term

(strategic) decisions on the executive level, respectively.

Purposive sampling (Saunders & Lewis, 2013) - researcher’s judgment - was utilized to

'hand pick' the respondents most suitable for the type of research. Additionally, to reach data

saturation, the snowball sampling was used. The initial participants were asked to identify the

suitable subsequent ones (Saunders & Lewis, 2013, p. 139). Appendix A contain the examples of

the interview cover letter sent to participants in order to request their participation.

The environment of DM has a significant effect on its process (Tannenbaum, 1950), and

as argued by Deboys (2004, p. 83) “decision analysis is applied increasingly widely, particularly

in large companies”. It is, therefore, empirical for this research to include the prevailing number

of the interviewees operating in a context of MNEs. However, to ensure triangulation and provide,

possibly, different approach and understanding of DMP, 3 out of 10 companies represent small

companies. Within these 3 companies, 2 are small multinational enterprises (SMEs) and 1 is small

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a high level employee in one of the world’s biggest MNEs in packaging industry, his experience

and knowledge had a significant contribution to the study. Also, participants were chosen to

embody varied industries and functional areas. Table 1 summarizes information about the

participants.

Table 1

Characteristics of the study’s participants*

Participant-Code Size Industry Location Type DMH

01 MNE technology Germany manufacturer/ service _provider operational

02 SME taxi Service

industry Brazil service provider strategical

03 MNE technology Brazil service provider tactical

04 MNE technology Brazil manufacturer tactical

05 Small family-owned

investment

(real estate) Belgium service provider strategical

06 MNE packaging Sweden manufacturer/ service

provider tactical

07 MNE pharmaceutical The Netherlands manufacturer strategical

08 MNE marketing research Spain service provider tactical

09 MNE energy division Brazil manufacturer

(mostly) strategical

10 SME transportation Russia _{provider (B2B, B2C sales)} manufacturer/ service operational

*Source: Author

3.2 The Process of Data Collection

In previous studies, related to this theme, data were collected through the examination of

business cases (

Bazerman & Chugh, 2006a; 2006b; Chugh & Bazerman, 2007;

Verbeke &

Greidanus, 2009; Zargarzadeh & Leroy, 2013) and the Alfred Chandler’s management book (Kano,

2013; 2015). Several biases undermine these methods. Particularly, business cases are written in a

way to demonstrate particular issues of a field study. Collecting data, writers reach out to

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will be revealed, might be prone not to disclose all relevant information to maintain a good

appearance. In a similar vein, Alfred Chandler’s book was written to demonstrate managerial

decision-making and actions within a specific firm context. Besides, previous methods did not

really unfold the “real world” occasions, from the field. Meaning that it would be interesting to

see the real understanding and perception of DM bounds by managers. And interview, with respect

to this, is the most captivating method.

There are numerous advantages owing to the selection of interviews: high suitability to

discover attitudes and motives (Smith, 1975), allowance to validate the answers by having

non-verbal signs (Gordon, 1975), facilitation to compare the responses since all questions will be

answered by each sample member (Bailey, 2008). Careful consideration was also given to how

the interviews were structured. It was decided to use structured open-ended questions because, in

combination with the above mentioned advantages, it would allow this study to learn the most

relevant and in-depth information (Leech, 2002; Turner, 2010). The wording of the questions

differed, however, in combination. They were designed to create a data bank that would help to

find common patterns. For each of the interview rounds a pilot testing was done to assure the

accuracy and applicability of the questions.

Albeit this research began with propositions to validate, it also had an objective to examine

the experiences and perceptions of those who implement business decisions on a daily basis. More

specifically, it was intended to identify the interpretations that managers construct in relation to

bounds in DMP. As the results, this study planned to provide managers with the framework that

would assure more comprehensive DM. For these purposes the research data collection was

organized as a three-stage design: two active stages and one supportive. The first and third stages

29

that it had to be performed in order to complete the study and answer the main research question.

At this stage the trial framework of DMP bounds was designed. It was mainly composed based on

the literature review; however, the data analysis of the first interview round was also taken into

consideration. After the participants’ implementation of the framework, the second round of

interviews was held. Upon the completion of the three stages, the cross-round and cross-case

interview analysis was held in order to obtain a holistic perspective, answer the research question

and refine the trial framework. Figure 4 provides the scheme of the research design process.

Figure 4. The design of the research process. *

*Source: Author

The questions of the first round interviews were designed to evaluate proposition one and

two of the study. The first phase of questions established the background of each of the

interviewees. Participants were encouraged to speak about their job, responsibilities and describe