🤖 AI Summary
This study addresses a key limitation in traditional strategic research, which often treats firms as unitary decision-makers and overlooks the heterogeneity and potential conflicts among individual preferences within organizations. The authors propose a formal mathematical framework that integrates random utility models with specific aggregation mechanisms—such as unanimity or pluralistic governance—to derive, for the first time, an operational organizational utility function. This function is not a simple average of individual utilities but is endogenously shaped by the chosen aggregation rule: unanimity amplifies risk aversion, whereas pluralistic governance fosters risk-seeking behavior. Through applications to Cournot competition and principal–agent models, the framework effectively explains and predicts organizational behavior in strategic interactions, revealing how governance structures fundamentally reshape organizational preferences and influence competitive and cooperative outcomes.
📝 Abstract
The long-standing unitary-actor assumption in strategy research -- treating firms as monolithic entities with coherent preferences -- misses that organizations are coalitions of individuals with diverse and often conflicting goals. Although behavioral perspectives have challenged this assumption, the field lacks an operational method for deriving an organizational utility function from the disparate preferences of its members and the specific structures used to aggregate them. We develop a mathematical framework that (i) maps individual utility functions into choice probabilities via a random-utility model, (ii) combines those probabilities using an explicit aggregation structure (e.g., unanimity or polyarchy), and (iii) recovers an organizational utility function that rationalizes the collective behavior. This establishes organizational utility functions as operationally meaningful: they summarize and predict organizational choice, yet are generally not simple averages of members'utilities. Instead, aggregation structures systematically reshape preferences -- unanimity approximates the pointwise minima of underlying utility functions, amplifying risk aversion; polyarchy approximates the pointwise maxima, promoting risk-seeking. We illustrate strategic implications in Cournot competition and principal-agent settings, showing how internal aggregation structures shift competitive and collaborative outcomes. Overall, the framework provides a parsimonious way to retrofit unitary-actor models with behaviorally grounded organizational preferences, reconciling the coalition view of the firm with rigorous and tractable strategic analysis.