Economic Perspectives III

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Benign Environment Promotes Decentralized Organization

Note: in order to run the simulation referred to in this slide, go here, to the Java Applet version. You will be directed to download the latest version of the Java plug-in.

Click the "Go" button below to run the simulation to your left. It features three types of units: two Decision Makers, the New Project unit, and three different Decision Screens. Here's what happens at every time step of the simulation, and how it corresponds to the functioning of a two-agent organization.

A new project, whose true value is displayed below the corresponding unit, is offered to an organization consisting of two identical Decision Makers - A and B. Each Decision Maker is more likely to approve of a project when its value is high. Such approval, when it does occur, is signaled by the Decision Maker's green color.

How, then, should the organization decide whether to accept or reject a new project, based on the decisions of its individual members? The dark-green and yellow units on the right represent two of the possibilities. Screen "A and B" will only accept a project if both A and B have accepted it. It represents a hierarchical or centralized approach to organization control, when the decision has to make it through all the levels of a hierarchy in order to be accepted.

On the other hand, the yellow "A or B" Screen will accept the decision if either of the Decision Makers has approved of it. This represents the opposing polyarchical or decentralized approach to organizational control, such that the project can be carried out by either of the agents, independent of each other's opinion.

For reference purposes, the blue "Perfect" Screen has direct access to the value of each New Project, and accepts only the positive-valued ones.

Try using the slider below the graph to alter the percentage of negative-valued projects. You may notice that when the percentage is high, the more discriminating Hierarchy ("A and B") Screen is more successful, for it weeds out the unwanted options. On the other hand, when there are few bad projects, catching the good ones becomes relatively more important. In that case, a decentralized, polyarchical approach becomes preferable.

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