A behavioral theory of the firm (Cyert and March)

Running head: A BEHAVIORAL THEORY OF A FIRM 1

A behavioral theory of a firm (Cyert and March)

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A BEHAVIORAL THEORY OF A FIRM 2

Prior to this book, neo-classical economists assumed that firms sought to maximize profits and

operated with perfect knowledge. These two assumptions are the first questioned by the

authors especially due to the fact that there are sociological and psychological certainties that

are left out by the classical approach about the firm.

Now going through the author's major theory which has the basic models: The Organizational

goal, Expectations and decisions of an organization and Relational concepts.

The goal of an organization

The authors' state that individual person has goal, as an organization they do not. However, if the

theory is to be well defined, there is need for a goal for the organization, or a corresponding

equivalent to that of an individual. The authors adopt a series of independent constraints forced

on the organization through negotiation among the bloc members and adjusted over time in

response to strains within.

For the goal analysis, the authors adopt two organizing devices. The first setoff exhaustive

variables influencing the dimensions of the goal while the second set of relational concepts

influences the aspiration on a particular goal. The second set is made of past performances, goals

of the organization and of others. Though the author state conflicting goals exist in firms, they do

not solve the problem given that for maximization problem we can use Lagrange Multiplier or

constraints to the objective function directly.

Expectations and decisions of an organization

According to the authors expectations are the result of inferring from the available information

and therefore a good theory should consider the avenue by which information is availed to the

firm. Due to the absence of...