Edited by Peter G. Klein and Michael E. Sykuta
Chapter 5: Cyert, March, and the Carnegie School
Mie Augier The ‘Carnegie school’ is one of the important intellectual roots of transaction cost economics (TCE), at least (and in particular) as developed and practiced by Oliver Williamson, and Williamson has written about his Carnegie connections on several occasions (1996b, 2002). As Williamson notes in the prologue to The Mechanisms of Governance (1996a), it was a direct result of his background as a student at Carnegie that he became interested in the idea of combining economics with organization theory, so central to today’s transaction cost theory (Williamson, 1996a, p. 18). The interdisciplinary spirit was ‘in the air’ at Carnegie at that time. ‘Those were exciting days’, Williamson recalls, ‘Orchestrating cutting-edge interdisciplinary research and teaching are never easy. . . . [b]ut in the late 1950s and early 1960s, Carnegie was the place to be’ (1996a, p. 21). The ‘Carnegie school’ is often identified with the pioneering work in behavioral economics done by Herbert Simon, James G. March, and Richard Cyert in the 1950s and 1960s (Earl, 1988). The Carnegie behavioralists are known for their interest in understanding how individuals and organizations act and make decisions in the real world, and their challenges to the neoclassical theory of optimization and maximization in decision making and organizations. Concepts such as bounded rationality and satisficing were developed to describe individuals and organizations acting in the face of ‘the uncertainties and ambiguities of life’ (March and Simon, 1958, p. 2). Many of these concepts were first discussed in the book Organizations (March and Simon, 1958)...
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