The Survival of the Most Flexible
In these days, at the S. Raffaele Centre for Cognitive Neurosciences, Bocconi researchers Daniella Laureiro (Ph.D. student), Stefano Brusoni and Maurizio Zollo are working with S. Raffaele neuroscientists Nicola Canessa and Stefano Cappa taking fMRI (functional Magnetic Resonance Imaging) scans of the brains of volunteer managers, innovators and entrepreneurs while they take decisions.
They are trying to empirically validate the findings of Cognitive Flexibility in Decision-Making: A Neurological Model of Learning and Change, a CROMA working paper (09/014) by Daniella Laureiro-Martinez (Bocconi PhD student), Stefano Brusoni (KiTES Bocconi) and Maurizio Zollo (CROMA Bocconi).
Laureiro, Brusoni and Zollo's main contention "is that to explain the variation across firms' abilities to adapt to the environment, it is necessary to take account of the degrees of cognitive flexibility in key decision-makers". While it is shared knowledge that inertial forces may prevent an organization from adapting to its environment, current literature rarely seeks the sources of such inertia in the individual managers' abilities to switch their mode of thinking from efficiency-driven improvements along established trajectories (exploitative behavior) to broad exploration of new approaches to less structured problems (explorative behavior).
Building on recent developments in neurosciences, the Bocconi researchers link the individual exploitative and explorative behaviors to the interaction between the anterior cingulate cortex (ACC), the orbitofrontal cortices (OFC) and the locus coeruleus5 (LC). OFC is involved in reward evaluation, while ACC is responsive to negative signals; LC responds to positive signals acting in a focused (exploitative) mode of attention (the phasic LC mode), to negative signals acting in a broad (explorative) mode (the tonic LC mode).
Laureiro, Brusoni and Zollo want to test the hypothesis that low environmental uncertainty, considered good by risk-averse decision-makers, is processed as a positive signal and triggers an exploitative mode of attention, which leads to a good performance as long as the environment is stable. On the other hand, high environmental uncertainty triggers an explorative thinking mode, which only gives better pay-offs in unsteady situations. In a dynamic model with task repetition and changing environmental conditions, cognitive flexibility - the ability to shift from one attention mode to the other at the right time - will be awarded by higher accumulated pay-offs and will be observable because good shifters should engage neural regions involved in task switching to a greater degree than poor shifters.
"Managerial cognitive flexibility", the three co-authors write, "might be at the basis of a firm's ability to adjust the way in which a given strategic problem is framed, which is the first step to developing a stable process to adapt operating routines in a predictable and systematic way... Even more interestingly, the analysis of cognitive flexibility might open new venues in managerial and entrepreneurial education through the development of tools and techniques which management students and practitioners can use to improve attention control and enhance their cognitive flexibility".