192 7: Decision Th eory
also a close affi nity between the decision logic of appropriateness and modern
institutional theory, the subject of Chapter 4. Both are grounded in sociology,
social psychology, and business and public administration, and both tend to use
the same methodologies. Th ird, the level of theorizing, modeling, and categoriz-
ing about institutional choice making from either perspective is probably greater
than the level of empirically based, theory-testing research (Simon 2000). Fourth,
and most importantly, scholars using the decision logic of consequences and
scholars using the decision logic of appropriateness are increasingly infl uenced
by one another.
Consider theory and research on the prisoners’ dilemma. Th e decision ratio-
nality of the two prisoners is increased when there are repeated trials. Th e point
is that partnerships that endure introduce considerations of reputation, trust, re-
taliation, and learning into the rationality equation. Repeated trials aid mutually
advantageous coordinated action. Under conditions of repeated trials, it matters
whether the players can assume that each is completely rational, understands the
situation, has complete knowledge, and acts consistently. If there is a small proba-
bility that the other player is not completely rational, outcomes change. Th e point
is that the resolution of the prisoners’ dilemma is based on trust, experience, and
making sense of the situation. Experience and trust are expressions of appropriate
decision behavior rather than purely rational self-interested behavior.
To complete this sketch of decision theory, we return to Simon. A few months
before his death in November 2000, he gave the John Gaus Lecture at the an-
nual meeting of the American Political Science Association (Simon 2000). He
described a meeting of Nobel economists at which “I treasonably defected to my
political science origins in order to defend our political institutions against the
imperialism of utility maximization, competitive markets, and privatization”
(2000, 750). He described contemporary economics as in a “productive state of
disorganization” in its search for alternatives to the market model.
Simon suggested that we are moving from a market economy to an organi-
zational economy. Th e bulk of modern economic activity now takes place within
the walls of large corporations, not in markets. In the organizational economy,
two organizational factors matter most. Th e fi rst is the way the organization de-
signs the coordination of specialized work; “organizational design focuses on
balancing the gains from coordination against its costs” (2000, 752). Th is is an-
other language for loose and tight coupling and the factors that infl uence orga-
nizational design choices. Th ose factors include measurable gains and costs, but
they also include the management of ambiguity, risk, imperfect information, and
uncertainty. Th e second factor is the contract between the organization and its
participants: Th is is almost exactly the same thing as identity.
Near the end of his lecture, Simon turned to another explanation for the sa-
lience of organizations. Markets cannot handle either power or fairness well.
Decisions regarding power and fairness are made best in nonmarket democratic