186 7: Decision Th eory
by observing others in the same role, by listening to stories, by following instruc-
tions and rules, and by uncoding what they understand others expect of them.
Informal group norms have been shown to exert a powerful eff ect on individual
behavior, particularly when behavior that is considered nonconforming is made
public (Cialdini and Goldstein 2004). Institutions develop agreed-upon norms
that, although informal, guide individual behavior. Over time, stories change,
expectations shift , rules change, and identities evolve. Th is evolution is an am-
biguity-driven constant interpretation and reinterpretation of the individual in
the organization and the organization itself. To manage the fuzziness of identity,
identity evolves (Bellow and Minow 1996).
In classic decision theory, reality is knowable, a direct application of the
physical sciences and their logic to the social world. From the sense-making per-
spective, reality is socially constructed, at least that part of reality having to do
with orga nizing and deciding (Berger and Luckmann 1967). In the social con-
struction of reality, decisionmakers conserve belief by interpreting new experi-
ences in ways that make them consistent with prior beliefs. Decisionmakers rely
on experience; they overestimate the probability of events they have experienced
and underestimate the probability of events that might occur (Frederickson
2000). Decisionmakers attribute events and actions to their own intentions and
capabilities rather than to happenstance or good fortune. And successful deci-
sionmakers are especially likely to see decisions as confi rming their own beliefs
and to refute contradictory evidence (March 1994, 183).
Because institutional reality is socially constructed, it is subject to multiple
contradictory constructions. Constructions of institutional reality tend to be
hegemonic, that is, a dominant interpretation of reality, usually based on a mas-
ter narrative and winning arguments (Hood and Jackson 1991). But ambiguous
situations can also result in an overreliance on System 1, or the potential to
create a “narrative fallacy” (Taleb 2010; see also Kahneman 2011). In this way,
the inherent ambiguity of social reality is reduced and replaced by a socially
constructed, less ambiguous version of reality, but one that may accurately re-
fl ect the facts or randomness of the situation. Decisionmaking, in the context
of socially constructed reality, is oft en a process of reconciling the socially con-
structed institutional hegemony with other understandings of reality.
“Neither rational theories of choice nor rule-following theories of identity
fulfi llment deal particularly well with ambiguity. Th e contradictions, inconsis-
tencies, and fuzziness of reality, preferences and identities are largely ignored.
Th e problems of ambiguous realities are either denied or treated as special cases
of uncertainty” (March 1994, 192).
Decision theorists working from the logic of the appropriateness perspec-
tive and from the sense-making perspective suggest that institutions respond
to all these ambiguities with decentralized patterns of decisionmaking. In the
language of decision theory, the ambiguity challenges faced by decisionmakers
are reduced by loose coupling, but not necessarily resolved in a logical fashion.