Using agent-based simulation to understand cooperation in business organizational settings

Abstract

There is no doubt around the dynamics and uncertainty characterizing organizations and their environments. Consequently, contemporary organizational thinking has evolved to embrace paradigms supported by complexity theory and its principles. Complexity theory involves the study of many actors and their interactions. One of the central topics regarding interaction between self-interested agents is cooperation. Cooperation is crucial for societies and organizations, since it allows the creation of common goods that no single individual could establish alone. However, this situation itself presents a dilemma, because as the creation of these goods requires an individual effort and the result is shared by everyone, there is the temptation to make an individual contribution as little as possible and receive as much of the result as one can. The problem of how can cooperation emerge in a organization of self-interested individuals is one of the central questions addressed by social sciences, game theory, political science and behavioural and evolutionary economics. The study of large number of actors with changing patterns of interaction often gets too difficult for a mathematical solution, therefore other type of solutions need to be used. A primary research tool of complexity theory is computer simulation. The basic underlying function of this tool is to specify how the agents interact, and then observe properties that occur at the level of the whole organization. The simulation of agents and their interactions is known as agent-based modelling (ABM) (Miller and Page 2007). Although agent-based modelling employs simulation, it does not aim to provide an accurate representation of a particular empirical application (Axelrod 1997). Instead, the goal of agent-based modelling is to enrich our understanding of fundamental processes that may appear in a variety of applications. This is the assumptions underlying the proposal described in this paper. To represent the functioning of an organization DEMO's Ψ-theory (Dietz 2006) was used. The Ψ-theory explains how and why people cooperate and communicate. It postulates that the operation of an organization can be expressed by a specification of the commitments that the organizational subjects enter into and comply with. Based on this theory and concepts developed in Game Theory this paper proposes a agent-based simulation with an underlying conceptual model that allows to experiment and analyse the different patterns that emerge when organizational subjects use different kind of strategies to handle commitments to produce organizational output.