Strategy - Lecture 2 Flashcards
What is strategy?
Anything that a company does to reach its goals
What do you hear in mainly high school economics?
That a firm is solely a maximization entity
If … were true then strategy would be the most boring field ever
The firm is a unified actor
What does the behavioral theory tell us?
How and why companies make certain decisions
What is the first view of the behavioral theory? And explain it
That a firm is viewed as a coalition of participants. This means that a firm has employees, investors, and management.
What is the second view of the behavioral theory? And explain it
The firm has no un-ambiguous objective function. Each group of participants will have their own objective.
What is the third view of the behavioral theory?
That information is not free, it has a price.
What is the last view of the behavioral theory? And explain it
Decision makers are boundedly rational. It means that we are all limited in how rational we can be.
The power of bargaining depends on which two things?
1) How unique their contribution is
2) Legitimacy
What are people and organizational decision makers?
Risk averse
What does escalation of commitment mean?
It’s the sunk cost argument: we’ve already paid for it so we better use it.
What does hyperbolic discounting mean?
Present payoffs versus future payoffs
What will happen when the answer is yes to performance aspiration? And what happens when the answer is no?
Yes: it will decrease its risk tolerance
No: It will increase its risk tolerance
What are the reasons of why it is hard to change when the goals are set?
1) Risk aversion
2) Escalation of commitment
3) Hyperbolic discounting
When are businesses changing easily?
When they are in a “loss” situation
