City Research Online

Heuristic methods for updating small world representations in strategic situations of Knightian uncertainty

Feduzi, A., Faulkner, P., Runde, J., Cabantous, L. ORCID: 0000-0003-3533-1208 and Loch, C. (2020). Heuristic methods for updating small world representations in strategic situations of Knightian uncertainty. Academy of Management Review, doi: 10.5465/amr.2018.0235

Abstract

Recent studies on the construction and use of “small world representations” in strategic decision-making under Knightian uncertainty say little about how such representations should be updated over the implementation phase. This paper draws on the psychology of reasoning to take a step towards answering this question. We begin by theorizing small world representations and how the scenario spaces they contain are constructed and may be updated over time. We then introduce two well-known heuristic methods of inquiry, disconfirmation and counterfactual reasoning, translate them into practical procedures for updating scenario spaces, and compare the relative performance of these procedures in strategic situations of Knightian uncertainty. Our principal findings are that the procedure based on counterfactual reasoning is superior to the one based on disconfirmation with respect to (1) counteracting the confirmation bias, (2) promoting the exploration of the set of imaginable scenarios, and (3) facilitating action to mitigate or exploit the consequences of what would otherwise have been Black Swans. We close with some broader implications for the study of strategic decision-making under Knightian uncertainty.

Publication Type: Article
Subjects: B Philosophy. Psychology. Religion > BF Psychology
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Business School > Management
Date Deposited: 09 Nov 2020 11:29
URI: https://openaccess.city.ac.uk/id/eprint/25201
[img] Text - Accepted Version
This document is not freely accessible until 30 October 2021 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

To request a copy, please use the button below.

Request a copy

Export

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login