Behavioral Theory of the Firm

The “behavioral theory of the firm” refers to a research tradition that follows the basic assumptions and interests of Richard M. Cyert and James G. March’s pioneering work, A Behavioral Theory of the Firm (Cyert and March 1963, cited under Classic Treatments). This work examines how organizations function when managers have bounded (not full) rationality, there is disagreement on goals, and the environment is uncertain. This is seen as a more realistic model of organizations than fully rational models or models with full agreement on goals and full knowledge of future states of the environment. Research in this tradition has focused on organizational stability through rules and routines, reduction of conflict through sequential attention to goals operationalized as constraints, and organizational change through the search for solutions that satisfy the goal constraints. Over time it has become broader, and it now includes a significant body of work on how organizations learn from their experience and the experience of other organizations. This bibliography is organized by topic area, and it displays representative work within each topic. For ease of exposition, the space devoted to each topic is not proportional to the work covered; that is, some topics are significantly more developed than others, so that a full coverage of these topics would consume a disproportionate amount of space.