©2007 INFORMS Two Faces of Search: Alternative Generation and Alternative Evaluation

At its core, a behavioral theory of choice has two fundamental attributes that distinguish it from traditional economicmodels of decision making. One attribute is that choice sets are not available ex ante to actors, but must be constructed. This notion is well established in our models of learning and adaptation. The second fundamental postulate is that the evaluation of alternatives is likely to be imperfect. Despite the enshrinement of the notion of bounded rationality in the organizations literature, this second postulate has been largely ignored in our formal models of learning and adaptation. We develop a structure with which to capture the imperfect evaluation of alternatives at the individual level and then explore the implications of alternative organizational structures, comprising such individual actors, on organizational decision making. Key words: organizational search; bounded rationality; organizational decision making A central building block of the behavioral theory of the firm is the notion of bounded rationality (Simon 1955). In contrast to the optimizing agent of neoclassical economics, Simon offered the satisficing decision maker. The set of alternative actions are not presumed to be laid out in their entirety ex ante, but must be discovered or searched. This facet of the behavioral theory of the firm (March and Simon 1958, Cyert and March 1963