The Search for New Alternatives: How Human Agents Balance Exploration and Exploitation in Complex Tasks

35 Pages Posted: 2 May 2012

See all articles by Stephan Billinger

Stephan Billinger

University of Southern Denmark - Department of Marketing & Management

Nils Stieglitz

Frankfurt School of Finance & Management; University of Southern Denmark - Strategic Organization Design Unit (SOD) - Department of Marketing & Management

Terry R. Schumacher

Rose-Hulman Institute of Technology

Date Written: April 1, 2012

Abstract

Balancing exploration and exploitation in organizational learning entails decisions about whether and where to search for new alternatives. We report the results from a laboratory experiment that sheds light on how individual decision-makers balance exploration and exploitation in search tasks. We show that the decision whether to search is governed by different behavioral regularities than the decision where to search for a new alternative. Positive performance feedback tends to motivate more sustained exploration of the search space, while at the same time constraining search to the neighborhood of an existing alternative. An explanation for this apparently contradictory finding is that both decisions are influenced by different aspirations. The decision about whether to search is driven by aspirations about what is attainable. Positive feedback shifts aspirations upwards, thereby prolonging exploration. In contrast, where to search is governed by a simple aspiration of performance improvement, and positive feedback tends to promote exploitation by narrowing down refinement search to a particular region of the search space. We discuss the implications of our research for organizational learning and computational models of adaptation.

Keywords: Exploration, exploitation, search, complexity, experiment

JEL Classification: C91, M13

Suggested Citation

Billinger, Stephan and Stieglitz, Nils and Schumacher, Terry R., The Search for New Alternatives: How Human Agents Balance Exploration and Exploitation in Complex Tasks (April 1, 2012). Available at SSRN: https://ssrn.com/abstract=2049342 or http://dx.doi.org/10.2139/ssrn.2049342

Stephan Billinger

University of Southern Denmark - Department of Marketing & Management ( email )

Strategic Organization Design unit (SOD)
Campusvej 55
Odense
Denmark
+45 6550 3187 (Phone)

HOME PAGE: http://www.sam.sdu.dk/staff/sbi

Nils Stieglitz (Contact Author)

Frankfurt School of Finance & Management ( email )

Sonnemannstra├če 9-11
Frankfurt am Main, 60314
Germany

University of Southern Denmark - Strategic Organization Design Unit (SOD) - Department of Marketing & Management ( email )

Campusvej 55
DK-5230 Odense M
Denmark

HOME PAGE: http://www.sdu.dk/sod

Terry R. Schumacher

Rose-Hulman Institute of Technology ( email )

Terre Haute, IN 47803
United States

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