Behavioral Microfoundations of New Practice Adoption: the Effects of Rewards, Training and Population Dynamics

Abstract

Organizations face challenges when trying to effectively introduce new operational practices that substitute for existing ones. We study how the social dynamics due to social comparisons between employees give rise to individual strategic considerations, and eventually shape the adoption organizational outcome. We develop an evolutionary game theory model that accounts for these micro-level individual adoption decisions, and their impact on macro-level population adoption equilibria. Social comparisons invoke dynamics that expand the possible outcomes beyond the traditional no-adoption versus full adoption dichotomy. Specifically, ahead seeking social comparisons drive the long-term coexistence of practices, because employees seek to differentiate their choices from others'. Meanwhile, behind averse comparisons create a bandwagon effect that determines adoption depending on the initial fraction of adopters, i.e., employees who are trained upfront.
These dynamics are robust to various settings, such as different conceptualizations of social comparisons; each employee responding to more than one kind of social comparison; and non-homogeneous social comparisons across employees.
Moreover, they are material to organisations that seek to maximize their profit when introducing a new practice, by setting the levels of upfront training and adoption rewards.
Our results call for senior managers to diagnose, and measure such behavioral traits to appropriately manage the introduction of new practices. Profitable adoption, or in some cases, any adoption, relies upon matching rewards and training to the type of social comparisons present. We show under which circumstances the sheer presence of social comparisons benefits the adopting organization.

Keywords: Organizational adoption processes, Social comparisons culture, Population equilibria, Evolutionary game theory, Bounded rationality