Cognitive flexibility and adaptive decision‐making: Evidence from a laboratory study of expert decision makers

• Author: Daniella Laureiro‐Martínez,Stefano Brusoni
• Date: 01 April 2018
• DOI: http://doi.org/10.1002/smj.2774
• Published date: 01 April 2018

RESEARCH ARTICLE

Cognitive flexibility and adaptive decision-making:

Evidence from a laboratory study of expert decision

makers

Daniella Laureiro-Martínez | Stefano Brusoni

Department of Management Technology and

Economics, ETH Zurich, Zurich, Switzerland

Correspondence

Daniella Laureiro-Martínez, Department of

Management Technology and Economics, ETH

Zurich, Weinbergstrasse 56/58, 8092 Zurich,

Switzerland.

Email: dlaureiro@ethz.ch

Funding information

Swiss National Science Foundation, Grant/Award

number: 100018_156196

Research Summary: How can strategic decision makers

overcome inertia when dealing with change? In this arti-

cle we argue that cognitive flexibility (i.e., the ability to

match the type of cognitive processing with the type of

problem at hand) enables decision makers to achieve sig-

nificantly higher decision-making performance. We show

that superior decision-making performance is associated

with using semiautomatic Type 1 cognitive processes

when faced with well-structured problems, and more

deliberative Type 2 processes when faced with ill-

structured problems. Our findings shed light on the

individual-level mechanism behind organizational adapta-

tion and complement recent work on strategic inertia. In

addition, our findings extend management studies that

have stressed the relevance of cognitive flexibility for

responding to the demands of increasingly open, flexible,

and rapidly changing organizations.

Managerial Summary: Humans are creatures of habits.

We tend to prefer known courses of action over new

ones. In many cases, habits are good. However, when

things change in unpredictable ways, the past may not be

good guidance for the future. We argue that “cognitive

flexibility”—the ability of understanding when to rely on

habits vs. when to explore new courses of action—

enables managers to switch from a “fast”decision mode,

based on habits, to a “slow,”more deliberate decision

mode that facilitates the exploration of new courses of

action. Managers high in cognitive flexibility reflect on

the situation at hand, recognize and value diversity in

viewpoints, and integrate such diversity in their own deci-

sion processes. By valuing diversity, they are more likely

to overcome inertia.

Received: 16 May 2016 Revised: 6 November 2017 Accepted: 9 November 2017

DOI: 10.1002/smj.2774

Strat Mgmt J. 2018;39:1031–1058. wileyonlinelibrary.com/journal/smj Copyright © 2018 John Wiley & Sons, Ltd. 1031

KEYWORDS

adaptive decision-making, cognitive flexibility, dual-

process theory, ill-structured problems, think-aloud

protocols

1|INTRODUCTION

Strategic change is difficult. Even when organizations recognize the need to change, they are often

unable to act and fall prey to inertia. The inability to engage in adaptive decision-making has proven

particularly detrimental to established firms (Tripsas & Gavetti, 2000). However, young firms are

also challenged by strategic changes (Gruber, MacMillan, & Thompson, 2012; Rerup & Feldman,

2011). In both contexts, the cognitive abilities of key decision makers are a crucial factor in explain-

ing strategic adaptability and, ultimately, success (Adner & Helfat, 2003; Eisenhardt, Furr, & Bing-

ham, 2010; Sharfman & Dean Jr, 1997; Thomas, Clark, & Gioia, 1993).

Research has shown that the ability to adapt to changing environmental problems is critical for

strategic decision makers (Barr, Stimpert, & Huff, 1992; Gavetti, 2005; Gavetti & Levinthal, 2000;

Hodgkinson, 1997; Joseph & Ocasio, 2012; Levinthal & March, 1993). However, little is known

about the individual-level mechanisms behind this ability, or its impact on performance. Responding

to recent calls to analyze the origins and characteristics of “managerial cognitive capabilities”

(Helfat & Peteraf, 2015), we study the individual-level mechanism through which decision makers

match their mode of cognitive processing to the task environment. We argue that cognitive flexibility

makes certain individuals better at adapting their cognitive processing to different types of problems.

Definitions of cognitive flexibility vary from an “ability to generate broad or narrow categorizations

of stimuli depending on appropriateness”(Murray, Sujan, Hirt, & Sujan, 1990) to the plasticity

required to adjust to new environmental demands (Furr, 2010; Salisbury, 2003). We build on these

ideas by defining cognitive flexibility as the ability to match the type of cognitive processing with

the type of problem at hand. This matching depends on two conditions being met. First, decision

makers need to be able to describe the type of problem they face, which requires the identification

of different elements, views, and perspectives of a situation. Second, decision makers need to con-

sider different possibilities, which requires active reflection on the elements identified to find possi-

ble connections and judge their appropriateness (Diamond, 2013; Raes, Heijltjes, Glunk, & Roe,

2011). Cognitive flexibility is important because “If a decision maker wanted to achieve both a rea-

sonably high level of accuracy and low effort, he or she would have to use a repertoire of strategies,

with selection contingent upon situational demands”(Payne, Bettman, & Johnson, 1988, p. 539).

In line with previous research in strategic management (Hodgkinson & Healey, 2011;

Levinthal & Rerup, 2006; Louis & Sutton, 1991) and the cognitive sciences (Evans & Stanovich,

2013; Lieberman, 2007), we frame our discussion in terms of the interplay between two types of

cognitive processing. We argue that decision makers use cognitive flexibility to switch between

these processes to solve problems (Deak, 2004), and show that individuals with high cognitive flexi-

bility achieve significantly higher performance in different types of problems.

Below, we present the concept of cognitive flexibility, then develop our theoretical model and

test it in a sample of experienced decision makers. Finally, we discuss our results and contributions.

1032 LAUREIRO-MARTÍNEZ AND BRUSONI