Two faces of search

Alternative generation and alternative evaluation by Thorbjørn Knudsen

At its core, a behavioral theory of choice has two fundamental attributes that distinguish it from traditional economic models of decision-making. One attribute is that choice sets are not available ex-ante to actors but must be constructed. This notion is well established in our models of learning and adaptation.

The second fundamental postulate is that the evaluation of alternatives is likely to be imperfect. Despite the enshrinement of the notion of bounded rationality in the organizations literature, this second postulate in fact has been largely ignored in our formal models of learning and adaptation. We develop a structure with which to capture the imperfect evaluation of alternatives at the individual level and then explore the implications of alternative organizational structures, comprising such individual actors, on organizational decision-making.