Abstract
Cost of effort is widely reflected in economic modelling of managerial decision-making. As such, much of the literature in principal-agent theory captures effort as disutility reflecting personal costs of subordinate decision-makers which, in tendency, reduces the efficiency of delegation. Based on ideas of bounded rationality, in this short note, a view on cost of effort is advocated which emphasizes “horizontal” interactions among subordinate decision-makers. An agent-based model employing the framework of NK fitness landscapes capturing subordinate decision-makers which show some form of bounded rationality in the spirit of Herbert A. Simon is set up. The simulation results suggest that heterogeneity among decision-makers regarding cost of effort including even high cost levels may have beneficial effects when the complexity of decision problems is high. This could shed some new light on cost of effort suggesting for further research.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
In line with the NK-framework, organizational performance is the normalized sum of the performance contributions obtained from each of the N single, potentially interacting choices. For departmental performances, the similar holds apart from the fact, that only performance contributions of those choices assigned to the particular department are calculated.
References
Eisenhardt, K.M.: Agency theory: an assessment and review. Acad. Manage. Rev. 14(1), 57–74 (1989)
Lambert, R.A.: Contracting theory and accounting. J. Account. Econ. 32(1–3), 3–87 (2001)
Holmström, B.: Moral hazard and observability. Bell J. Econ. 10(1), 74–91 (1979)
Baker, G.P.: Incentive contracts and performance measurement. J. Polit. Econ. 100(3), 598–614 (1992)
Feltham, G.A., Xie, J.: Performance measure congruity and diversity in multi-task principal/agent relations. Account. Rev. 69(3), 429–453 (1994)
Simon, H.A.: A behavioral model of rational choice. Quarterly J. Econ. 69(September), 99–118 (1955)
Simon, H.A.: Theories of decision-making in economics and behavioral science. Am. Econ. Rev. 49(3), 253–283 (1959)
Bushman, R.M., Indjejikian, R.J., Smith, A.: Aggregate performance measures in business unit manager compensation: the role of intrafirm interdependencies. J. Account. Res. 33(Supplement), 101–129 (1995)
Wall, F.: Agent-based modeling in managerial science: an illustrative survey and study. Rev. Manag. Sci. 10(1), 135–193 (2016)
Kirman, A.P.: Whom or what does the representative individual represent? J. Econ. Perspect. 6(2), 117–136 (1992)
Levinthal, D.A.: Adaptation on rugged landscapes. Manage. Sci. 43(7), 934–950 (1997)
Kauffman, S.A., Levin, S.: Towards a general theory of adaptive walks on rugged landscapes. J. Theoretical Biol. 128(1), 11–45 (1987)
Kauffman, S.A.: The Origins of Order: Self-Organization and Selection in Evolution. Oxford University Press, Oxford (1993)
Li, R., Emmerich, M.M., Eggermont, J., Bovenkamp, E.P., Bäck, T., Dijkstra, J., Reiber, J.C.: Mixed-integer NK landscapes. In: Runarsson, T., Beyer, H.-G., Burke, E., Merelo-Guervós, J., Whitley, L.D., Yao, X. (eds.) Parallel Problem Solving from Nature - PPSN IX, vol 4193. Lecture Notes in Computer Science, pp. 42–51. Springer, Heidelberg (2016)
Csaszar, F.A.: A note on how NK landscapes work. J. Organ. Des. 7(1), 1–6 (2018)
Liu, P., Li, Z.: Task complexity: a review and conceptualization framework. Int. J. Ind. Ergonomics 42(6), 553–568 (2012)
Wall, F.: Coordination and search for new solutions. In: Bucciarelli, E., Chen, S.-H., Corchado, J.M. (eds.) Decision Economics: Complexity of Decisions and Decisions for Complexity, pp. 10–17. Springer International Publishing, Cham (2020)
Kölle, F.: Heterogeneity and cooperation: the role of capability and valuation on public goods provision. J. Econ. Behav. Organ. 109, 120–134 (2015)
Albanese, R., Fleet, D.D.V.: Rational behavior in groups: the free-riding tendency. Acad. Manage. Rev. 10(2), 244–255 (1985)
Delton, A.W., Cosmides, L., Guemo, M., Robertson, T.E., Tooby, J.: The psychosemantics of free riding: dissecting the architecture of a moral concept. J. Pers. Soc. Psychol. 102(6), 1252–1270 (2012)
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2021 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this paper
Cite this paper
Wall, F. (2021). A Short Note on Cost of Effort: Beneficial Effects in Complex Decision-Making Situations. In: Bucciarelli, E., Chen, SH., Corchado, J.M., Parra D., J. (eds) Decision Economics: Minds, Machines, and their Society. DECON 2020. Studies in Computational Intelligence, vol 990. Springer, Cham. https://doi.org/10.1007/978-3-030-75583-6_15
Download citation
DOI: https://doi.org/10.1007/978-3-030-75583-6_15
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-75582-9
Online ISBN: 978-3-030-75583-6
eBook Packages: Intelligent Technologies and RoboticsIntelligent Technologies and Robotics (R0)