Economics - Theses

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Encoding and decoding aspiration information for improved performance: a competitive dynamics perspective

Liu, Yan Emma ( 2011)

The study investigates the impact of competition on firms’ aspiration setting and adjustment. Two related mechanisms in firm cognitive frameworks are considered here: making sense of (i.e. decoding) and giving sense of (i.e. encoding) aspiration information. Grounded in the competitive dynamics literature, a theoretical model is developed to further explore the closed-loop system of encoding and decoding mechanisms. Formal modeling is then applied to operationalize the theoretical model and verify the proposed hypotheses. The simulation experiment results show that the competitive dynamics perspective completes the conventional wisdoms. The analysis derives three new managerial insights: 1) the firm with high aspirations may not decode information comprehensively, which is detrimental to its performance in competition; 2) the firm can act aggressively to diminish the dysfunction of high aspirations; and 3) the firm is able to deliberately encode public signals to manipulate rivals’ understanding on competitive pressure, seducing them to take inappropriate actions in pursuit of its improved performance.