Neuroeconomics and the Firm
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Neuroeconomics and the Firm

Edited by Angela A. Stanton, Mellani Day and Isabell M. Welpe

The ideal firm has been studied over several centuries, yet little is known about what makes one successful and another fail. This pioneering book brings together leading researchers investigating the concept of the firm from a neuroscientific perspective.
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Chapter 1: Neuroeconomics of Environmental Uncertainty and the Theory of the Firm

Helen Pushkarskaya, Michael Smithson, Xun Liu and Jane E. Joseph


Helen Pushkarskaya, Michael Smithson, Xun Liu and Jane E. Joseph There is a need to be much more precise in defining, using, and measuring the construct of environmental uncertainty. Frances J. Milliken (1987, p. 135) Since Knight’s (1921) suggestion that the acts of entrepreneurship are closely associated with environmental uncertainties, interest in research on environmental uncertainty has experienced ebbs and flows. This area of research reached a peak of popularity in the 1970s (for review, see Downey et al., 1975) when various researchers proposed different frameworks for describing it, including unpredictability (Cyert and March, 1963), lack of knowledge (Duncan, 1972) and complexity (Galbraith, 1973). Then the interest in the topic fell off dramatically, to reach another peak during the 1990s, when it was found that perceptions and beliefs about the environment affect top management decision-making more strongly than do actual environmental realities (Isabella and Waddock, 1994). Particular attention was paid to organizational response to perceived environmental uncertainties (for example, Kumar and Seth, 1998). In addition, by the 1990s, tools of experimental economics allowed researchers to collect sufficient empirical evidence that supported differentiation between two types of uncertain environments: risk and ambiguity, which provided an empirical ground for further theoretical advances (see Camerer and Weber, 1992 for a review of empirical and theoretical work). Milliken (1987) suggested that a reason for such an unsteady dynamic of development of this research area might be that ‘the results of the research were not easily interpretable’ (p. 135). She also argued that ‘there is...

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