# A Behavioral Theory of the Firm (Cyert & March 1963) ## 🎯 핵심 주장 Firms are **political coalitions** with conflicting goals, not unified profit-maximizers. Decision-making follows **organizational routines** under bounded rationality. Goals emerge from **bargaining** among coalition members. ## 💡 Null Breaking **They Said**: Neoclassical economics—firms maximize profits (single objective function). **Cyert & March Said**: Firms are coalitions with **multiple, conflicting goals**. No single objective exists. Instead: - Goals are **constraints** ("aspiration levels") not maxima - Decisions follow **standard operating procedures** - Search is **local and sequential** - Learning is **adaptive**, not optimal **Surprise**: Most management time spent on **internal coalition politics**, not external market optimization. ## 🔑 Keep / Retire ### Keep ✅ - **Coalitional view**: Organizations = political entities - **Organizational routines**: SOPs guide behavior - **Aspiration levels**: Goals as satisficing thresholds - **Local search**: Look nearby first, expand if failing - **Organizational slack**: Excess resources smooth conflicts - **Attention allocation**: Who looks at what matters ### Retire/Update ❌ - **Too descriptive**: Lacks formal model (Gibbons: need game theory) - **Underplays relational contracts**: Later work (Kreps, BGM) adds equilibrium logic - **Static view**: How do routines change? (Nelson-Winter add evolution) ## 🧱 논증 블록 ### Block 1: Firms as Coalitions **Not**: Single decision-maker maximizing profit **Is**: Coalition of groups (shareholders, managers, workers, customers, suppliers) with **different goals** ### Block 2: Goals as Aspiration Levels Coalition members negotiate **constraints**: - Shareholders: "At least 10% ROI" - Workers: "At least $25/hour" - Managers: "Market share above 15%" Firm satisfices all constraints, not maximizes anything. ### Block 3: Organizational Routines Decisions follow **SOPs** (Standard Operating Procedures): - Reduce cognitive load - Enable coordination - Embody organizational memory **But**: Slow to change, can become dysfunctional ### Block 4: Search and Learning When performance < aspiration → **Search**: 1. **Local first**: Nearby solutions 2. **Sequential**: One problem at a time 3. **Adaptive**: Learn from feedback ## 🔗 Connections ### Builds On - **Barnard (1938)**: Organizations as cooperative systems - **Simon (1947)**: Bounded rationality, satisficing - **March (1962)**: Business firm as political coalition ### Built Upon By - **Nelson & Winter (1982)**: Evolutionary theory—routines as "genes" - **Kreps (1990)**: Corporate culture as equilibrium—formalizes routines - **Gibbons (2025)**: Coalitional management + equilibrium-building ### Contrasts With - **Neoclassical theory**: Single objective (profit max) - **Agency theory**: Principal-agent conflicts (too narrow—many stakeholders) - **GH (1986)**: Unitary actors bargaining (C&M: internal coalitions matter more) ## 🎓 Teaching Notes ### The Coalition Insight Example: University - **Neoclassical view**: University maximizes... what? Prestige? Research output? - **C&M view**: Coalition of: - Faculty: Want research time, autonomy - Students: Want good teaching, credentials - Admin: Want smooth operations, budget balance - Alumni: Want reputation, traditions → President doesn't "optimize"; they **manage coalition conflicts** ### Organizational Slack When resources abundant → slack accumulates: - Excess staff - Inefficient processes - Comfortable routines **Function**: Absorbs shocks, smooths conflicts **Dysfunction**: Hides problems, resists change ### Connection to Gibbons | Cyert & March (1963) | Gibbons (2025) | |----------------------|----------------| | Coalitional firm | Coalitional management | | Routines | Equilibria (formalized routines) | | Local search | Equilibrium-building is path-dependent | | Aspiration levels | Participation constraints | ## 🔬 Research Implications ### Predictions 1. **Multiple goals**: Firms pursue various constraints simultaneously 2. **Sequential attention**: Problems solved one at a time 3. **Slack correlates with performance**: High performance → more slack 4. **Routine persistence**: SOPs change slowly (path dependence) 5. **Coalition shifts predict strategy changes**: Who has power matters ### Empirical Support - **Greve (2003)**: Aspiration-performance gaps drive innovation - **Bromiley (1991)**: Risk-taking increases below aspiration levels - **Ocasio (1997)**: Attention structures shape decisions ### Modern Extensions - **Behavioral strategy**: How biases shape firm decisions - **Organizational ecology**: Routines as selection units - **Gibbons et al. (2021)**: Categorization shapes equilibrium selection ## 📊 Impact ### Academic - **42,000+ citations** (most-cited management book?) - Founded **Carnegie School** tradition - Precursor to **evolutionary economics** (Nelson-Winter) - Influenced **behavioral strategy** field ### Practical - Legitimized **stakeholder view** vs. shareholder primacy - Explained why firms don't always "optimize" - Management: Focus on coalition-building, not just strategy ## 📝 Personal Notes ### Why Gibbons Needs This **Problem**: GH (1986) treats firms as unitary actors **C&M Solution**: Firms are coalitions—internal politics matter as much as external contracts **Gibbons Synthesis**: - Within firms: Coalition management (C&M) - Between firms: Relational contracts (BGM) - Both require: Equilibrium-building (Kreps, Gibbons) ### The Triple View 1. **Economics (GH)**: Property rights, residual control 2. **Behavioral (C&M)**: Coalitions, routines, bounded rationality 3. **Sociological (Kreps)**: Culture, equilibria, shared meaning → Gibbons integrates all three! ### C&M + Kreps (1990) **C&M**: Organizations have routines **Kreps**: Routines are **equilibria** of repeated games **Synthesis**: Routines ≈ Relational contracts ≈ Culture - All are equilibria - All solve coordination problems - All face **clarity problems** (shared understanding) ## 🎯 One-Sentence Summary Firms are political coalitions pursuing multiple aspiration-level goals through organizational routines, under bounded rationality and sequential local search—not unitary profit-maximizers. --- *"Business firms are not unitary actors but political coalitions."* — Cyert & March (1963) *"Managers spend more time managing internal coalitions than dealing with external environments."* — March (1962) *"Coalitional view within + between organizations"* — Gibbons (2025)