Is the Boss Always Right? Discerning the Effects of Hierarchy on Exploration and Exploitation

Abstract

The literature on antecedents and consequences of exploration and exploitation behavior in organization learning, while extensive, uses both a wide variety of context-dependent operationalizations and also exhibits a clear methodological tradeoff between the strong causal inference of models and the realism of field and archival studies. Experiments with human subjects raise the promise of examining actual human behavior under controls that strengthen causal inference. To design an experiment with these properties, we focused on a structural determinant of exploration and exploitation behavior and analyzed the effect of hierarchical authority on team behavior and performance in a simple multi-armed bandit game. Consistent with extant literature, hierarchy increases exploitation behavior. Importantly, while models of simple multi-armed bandit games predict convergence on strategies that maximize performance, our experiments with humans demonstrated that hierarchical authority reduced convergence despite this increase in exploitation behavior. Post-hoc analyses demonstrate that hierarchical conditions yield more convergence on sub-optimal strategies than non-hierarchical conditions. These results demonstrate the importance of testing modeling assumptions about human behavior in experimental conditions, and we conclude by offering an agenda for further research in this area.