The Behavioral Model of Cyert and March

The behavioral theories of the firm started to mention in the early 1950’s. Some of the seminal work may be traced in Simon’s article. “A behavioral model of rational choice”, published in quarterly journal of Economics in 1955. The Theory has been subsequently been elaborated by Cyert and March. Now, this theory has been associated with the names of Cyert & March, The writes founded their studies on four case studies and two’s laboratory experimental studies’. Cyery and March model can be explained in the following sequence.
The Firm is a Coalition of Group’s with Conflicting Goals
The Behavioural theory focuses on the decision-making process of the ‘Large multi-product firm under uncertainty in an imperfect market where ownership is divorced from management. According to behavioral theory the firm is not treated as a single-goal single decision unit, as in the traditional theory, but as a multigoal, multidecision organizational coalition. The firm connected with its activity in various ways: Managers, worker’s, is conceived as a coalition of variety of groups such as shareholder’s, customers, suppliers, bankers, tax inspectors, lawyers and so on. Each group has its own set of goals or demands. For instance, workers want high wages, hood pension schemes and good conditions of work. The managers want high salaries, power, prestige etc. The shareholder’s want high profits growing capital and market size. Customers want goods & services of high quality along with low price. The suppliers want steady or growing contracts for the materials they sell to the firm, and so on.
Thus most important groups within the framework of the behavioral theories are those who directly connected with the firms’ activities, namely the manager’s, the workers and the shareholders with conflicting interest in the firms.
The Process of Goal Formation the Concept of the Aspiration Level
The behavioral theory recognizes explicitly that there exists a basic dichotomy in the firm between individual members of the coalition-firm and organization-coalition called the firm’. The consequence of this dichotomy is a conflict of goals. Individuals may have different goals to the organization. In order to reconcile the conflicting goals, managers set an aspiration level of the firm on the basis of previous history of the firm, that is, on previous levels of achievement, previous aspiration levels and their assessment of the future market conditions. Cyert and March argue that the relationship between demand-aspirations and past achievement depends on actual and expected changes in the performance of the firm and changes in its environment, firstly, in a ‘steady situation’(with no growth), aspirations (demands) and past achievement tend to become equal. Secondly, in a dynamic situation with growth, aspiration levels lat behind achievement. This time-lag is crucial to the behavioral theory. During this time lag the firm is able to accumulate ‘excess profit’ which may be used as a means of resolution of the conflict in the firm that act as a stabilizer of the firm’s activity in a changing environment. Thirdly, in a period of decline of the activity of the firm, demand are larger than past achievements, because the aspiration levels of the members of the coalition adjust downwards slowly.