Mental Representation and the Discovery of New Strategies

Strategic Management Journal, Forthcoming

35 Pages Posted: 23 May 2013 Last revised: 7 Sep 2015

See all articles by Felipe A. Csaszar

Felipe A. Csaszar

University of Michigan, Stephen M. Ross School of Business

Daniel Levinthal

University of Pennsylvania - Management Department

Date Written: August 25, 2015

Abstract

Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect how managers search for profitable strategies as well as the quality of strategies they discover. To study how mental representation and search interact, we formally model the dual search over possible representations and over policy choices of a strategy 'landscape.' We analyze when it is preferable to emphasize searching for the best policies rather than the best mental representation, and vice versa. We show that in the long run a balance between the two search modes not only results in better expected performance but also reduces the variation in performance. Additionally, the paper describes conditions under which increased accuracy of mental representations can actually worsen firm performance.

Keywords: cognition, mental representation, search, NK models

JEL Classification: D21, D23, D81, D83, M13, O31, O32

Suggested Citation

Csaszar, Felipe A. and Levinthal, Daniel A., Mental Representation and the Discovery of New Strategies (August 25, 2015). Strategic Management Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2267568 or http://dx.doi.org/10.2139/ssrn.2267568

Felipe A. Csaszar (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
(734) 615 4854 (Phone)

Daniel A. Levinthal

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States
215-898-6826 (Phone)
215-898-0401 (Fax)

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