Dysfunctional learning in decision processes: the case of employee reciprocity
Article first published online: 27 OCT 2011
Copyright © 2011 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 32, Issue 13, pages 1411–1425, December 2011
How to Cite
Markle, A. B. (2011), Dysfunctional learning in decision processes: the case of employee reciprocity. Strat. Mgmt. J., 32: 1411–1425. doi: 10.1002/smj.967
- Issue published online: 27 OCT 2011
- Article first published online: 27 OCT 2011
- Manuscript Revised: 2 AUG 2010
- Manuscript Received: 16 JAN 2009
- gift exchange;
- employee incentives;
- decision making
While traditional economic models characterize individuals as boundlessly self-interested, decades of empirical findings suggest that individuals' self-interest motives are constrained by concurrent preferences for fairness. Individuals act on these preferences by behaving reciprocally: rewarding others perceived as behaving fairly and punishing others perceived as behaving unfairly. Successful firms must learn to navigate environments characterized by the reciprocity of their transaction partners. This paper investigates firms' judgments about employee reciprocity and posits a dysfunctional learning process whereby firms that overestimate employee reciprocity learn to correct their beliefs through feedback, while those that underestimate employee reciprocity do not. The result, demonstrated through computer simulation, is a systematic bias toward an overemphasis on employee self-interest, and a resulting inefficiency in wage choices that hurts firm profitability. Copyright © 2011 John Wiley & Sons, Ltd.