Exploration and exploitation in complex search tasks: How feedback influences whether and where human agents search

• Author: Terry R. Schumacher,Nils Stieglitz,Stephan Billinger,Kannan Srikanth
• DOI: http://doi.org/10.1002/smj.3225
• Date: 01 February 2021
• Published date: 01 February 2021

RESEARCH ARTICLE

Exploration and exploitation in complex search

tasks: How feedback influences whether and

where human agents search

Stephan Billinger

1

| Kannan Srikanth

2

| Nils Stieglitz

3

|

Terry R. Schumacher

4

1

Department of Marketing and Management, Strategic Organization Design Unit (SOD), Danish Institute for Advanced

Study (DIAS), University of Southern Denmark, Odense, Denmark

2

Department of Management and Human Resurces, The Ohio State University, Fisher College of Business,

Columbus, Ohio

3

Management Department, Frankfurt School of Finance & Management, Frankfurt am Main, Germany

4

Faculty of Design –Computer Science –Media, RheinMain University of Applied Sciences, Wiesbaden, Germany

Correspondence

Stephan Billinger, Department of

Marketing and Management, University

of Southern Denmark, Campusvej

55, 5230 Odense M, Denmark.

Email: sbi@sam.sdu.dk

Funding information

Danish Council for Independent Research

Research Abstract

Exploration and exploitation in strategic decision-

making entails decisions about whether and where to

search for new alternatives to improve the status quo.

Prior research has not explored how decisions about

whether to continue search (vs. stop search or satisfice)

and where to search (near vs. far) are interrelated. We

report laboratory experiment results on how individuals

decide whether and where to search in a complex, com-

binatorial task. We find that different feedback vari-

ables influence the decision to stop search from

decisions regarding how broadly to search. Our results

suggest that not accounting for the decision to continue

(or stop) searching, separately from breadth of search,

can lead to incorrect predictions regarding how feed-

back influences search behavior.

Managerial Abstract: Managers concerned about the

performance of their company face two challenges—

they have to find out what potential performance is

feasible given their business environment and which

organizational policies to implement to realize it. We use

Received: 24 October 2013 Revised: 19 June 2020 Accepted: 29 July 2020 Published on: 7 September 2020

DOI: 10.1002/smj.3225

Strat Mgmt J. 2021;42:361–385. wileyonlinelibrary.com/journal/smj © 2020 John Wiley & Sons Inc. 361

a stylized laboratory experiment to better understand

how feedback from experimentation informs such a

learning process. We find that early-stage feedback has a

lasting impact on performance aspirations and manage-

rial expectations about feasible performance. Superior

early feedback thereby motivates more sustained experi-

mentation with organizational policies. In contrast, more

recent feedback guides the extent to which managers are

willing to engage in more radical policy adjustments,

especially in the latter stages of a learning process.

KEYWORDS

behavioral strategy, exploitation, exploration, satisficing, search

1|INTRODUCTION

Search is a core process in the behavioral theories of the firm and central for strategic decision-

making. We often visualize the objective of search as the quest to identify tall peaks on a search

landscape—optimal choices—by balancing exploration of new domains and exploitation of

known domains (Ethiraj & Levinthal, 2004; Levinthal, 1997; Siggelkow & Levinthal, 2003). In

the last two decades, a substantial theoretical and empirical literature has studied how organi-

zations balance the conflicting demands of exploration and exploitation in strategic decision-

making, for example, in the context of ambidexterity (see O'Reilly III & Tushman, 2013 for a

review; Junni, Sarala, Taras, & Tarba, 2013 for a meta-analysis) or problemistic search and orga-

nizational adaptation (see reviews by Baumann, Schmidt, & Stieglitz, 2019; and Posen, Keil,

Kim, & Meissner, 2018).

Though search is a core concept in behavioral theories, prior work has conceptualized the

tradeoff between exploration and exploitation, and thus search processes, in very different ways.

One scholarly approach examined this tradeoff as the choice between searching (exploring) ver-

sus not searching (exploiting)—that is, whether to search (Gaba & Greve, 2019; Greve, 2003,

2007; Lee & Meyer-Doyle, 2017). Formally, this trade-off is the choice between exploiting alter-

natives currently believed to be superior, versus exploring alternatives currently seen as inferior

that might be beneficial in the future, often exemplified by work using the bandit model

(Denrell & March, 2001; Posen & Levinthal, 2012; Stieglitz, Knudsen, & Becker, 2016).

Other scholars have modeled the tradeoff between exploration and exploitation as the

choice between radical change (exploring) versus incremental change (exploiting)—that is,

where to search (Ahuja & Katila, 2002; Benner & Tushman, 2003; Fleming, 2001; Fleming &

Sorenson, 2004; Klingebiel & Joseph, 2016). Formally, the tradeoff here is the choice to search

in the neighborhood of current activities versus in more distant domains, exemplified by the

work on the NK model (Levinthal, 1997; Ethiraj & Levinthal, 2004; Rivkin, 2000; Rivkin &

Siggelkow, 2003; Siggelkow & Levinthal, 2003).

Interestingly, most prior work does not recognize these as two different but inter-related deci-

sions. Prior work has convincingly argued that a decision maker stops expanding the set of

alternatives once a satisficing alternative is found (cf. Güth, 2010; Papi, 2012; Simon, 1955;

362 BILLINGER ET AL.