09 Nov 2007  Working Papers

Recognizing the New: A Multi-Agent Model of Analogy in Strategic Decision-Making

Executive Summary — Firms must discover and pursue viable strategic positions particularly during times of change, in the early phases of a new industry, or after a discontinuity of some sort. At these times, the context of choice is typically hard to interpret: Among other reasons, knowledge of cause-and-effect relationships is unavailable or difficult to obtain, the nature of industry participants is ambiguous, and opportunities are ill-defined. What underlies the intelligence of strategic choice in these settings? This paper argues that recognition is essential to such choices for both individuals and groups. Recognition refers to a class of cognitive processes through which a problem or situation is interpreted associatively in terms of something that has been experienced before. The paper models recognition processes in groups of decision-makers and shows how a few select group-level characteristics might improve recognition outcomes. Key concepts include:

  • The study presents a model that plausibly captures the recognition processes in groups of decision-makers. The model offers a useful guide to a better understanding of the cognitive reality of strategic choice.
  • The study suggests, among other things, how communication across a network of individuals can facilitate the recognition of realities or problems that are genuinely novel, or new to each of them.
  • Finally, the authors provide theoretical foundations for a largely understudied form of strategic choice. These foundations may help to understand and improve strategic choice.

 

Author Abstract

In novel environments, strategic decision-making is often premised on analogy, and recognition lies at its heart. Recognition refers to a class of cognitive processes through which a problem is interpreted associatively in terms of something that has been experienced in the past. Despite recognition's centrality to strategic choice, we have limited knowledge of its nature and its influence on strategic decision-making in individuals, much less in the multi-agent settings in which these decisions typically occur. In this paper, we develop a model that extends neural nets techniques to capture recognition processes in groups of decision-makers. We use the model to derive some fundamental properties of collective recognition. These properties help us understand how the intensity of communication among group-members and some select structural characteristics of the group affect recognition outcomes in novel and structurally ambiguous worlds. In particular, we demonstrate that communication pressure can lead agents to converge to shared interpretations or recognitions that are new to each of them, thereby helping them recognize problems that are genuinely new. We also show that when communication is too intense, its beneficial aspects give way to the pathologies of "groupthink." We conclude by discussing how our results are relevant to strategic choice, as well as how our model complements both other theories of choice that view the role of experience as central and recent work in population ecology that emphasizes cognitive processes.

Paper Information