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A Short Note on Cost of Effort: Beneficial Effects in Complex Decision-Making Situations

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Abstract

Cost of effort is widely reflected in economic modelling of managerial decision-making. As such, much of the literature in principal-agent theory captures effort as disutility reflecting personal costs of subordinate decision-makers which, in tendency, reduces the efficiency of delegation. Based on ideas of bounded rationality, in this short note, a view on cost of effort is advocated which emphasizes “horizontal” interactions among subordinate decision-makers. An agent-based model employing the framework of NK fitness landscapes capturing subordinate decision-makers which show some form of bounded rationality in the spirit of Herbert A. Simon is set up. The simulation results suggest that heterogeneity among decision-makers regarding cost of effort including even high cost levels may have beneficial effects when the complexity of decision problems is high. This could shed some new light on cost of effort suggesting for further research.

Keywords

  • Agent-based simulation
  • Complexity
  • Cost of effort
  • Decision-making
  • Heterogeneity
  • NK fitness landscapes

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Fig. 1.
Fig. 2.

Notes

  1. 1.

    In line with the NK-framework, organizational performance is the normalized sum of the performance contributions obtained from each of the N single, potentially interacting choices. For departmental performances, the similar holds apart from the fact, that only performance contributions of those choices assigned to the particular department are calculated.

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Correspondence to Friederike Wall .

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Wall, F. (2021). A Short Note on Cost of Effort: Beneficial Effects in Complex Decision-Making Situations. In: Bucciarelli, E., Chen, SH., Corchado, J.M., Parra D., J. (eds) Decision Economics: Minds, Machines, and their Society. DECON 2020. Studies in Computational Intelligence, vol 990. Springer, Cham. https://doi.org/10.1007/978-3-030-75583-6_15

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