A Summary of Cyert & March's Behavioural Theory of the Firm

A Behavioural Theory of the Firm

Summary

Cyert and March are concerned with the business firm and the way the business firm makes economic decisions. The authors make detailed observations of the processes and procedures by which firms make decisions, using these observations as a basis for a theory of decision making in business organizations. They argue that one way to understand modern organizational decision making is to supplement the microeconomic study of strategic factor markets with an examination of the internal operation of the business firm-to study the effects of organizational structure and conventional practices on the development of goals, the formation of expectations, and the implementation of choices.

At the very outsetset, the authors make four major research commitments:

To focus on the small number of key economic decisions made by the firm

To develop process-oriented models of the firm

To link models of the firm as closely as possible to empirical observations

To develop a theory with generality beyond the specific firms studied

Cyert and March develop an empirically relevant, process-oriented general theory of economic decision making by a business firm.

Example of Markov Decision Process (MDP) transitio...

Decision Making Chart

Control loop of a Markov Decision Process

They present the rudiments of a behavioral theory of the firm that have proven to be relevant both to economic theory and to the theory of complex organizations.

The authors then go on to lay out the antecedents to the behavioral theory of the firm. They discuss the theory of the firm, organization theory and certain questions in a revised theory of firm decision making regarding:

Organizational Objectives

Decision strategies

Decision making within strategies

To build the behavioral theory of the firm, Cyert and March develop four major subtheories concerning the following:

Organizational goals

A theory of organizational goals considers how goals arise in an organization, how goals change over time, and how the organization attends...