Behavioural Theory of the Firm

Dr. Muralidhar Sunil

Abstract

In the study of organizational economics and management, the Behavioral Theory of the Firm (BTF) is a fundamental theoretical framework. An overview of the BTF's main ideas, tenets, and consequences for comprehending organizational behavior and decision-making are explored in this abstract. The typical neoclassical economic theory, which makes the assumption that businesses are logical, profit-maximizing entities, is disregarded by the BTF. Instead, it acknowledges that people inside organisations have confined rationality, constrained information processing capacities, and a range of preferences. These cognitive biases and human limitations affect how businesses operate and make choices. This abstract explores the fundamental ideas of the BTF, including satisficing behavior, organizational practices, and making decisions in the face of ambiguity. It emphasizes how crucial it is to comprehend how interpersonal connections inside a company shape organizational behavior and how cognitive and social elements affect employees' decisions. The abstract also emphasizes the importance of using the BTF in numerous organizational situations, including corporate governance, innovation, and strategic management. It looks at how the theory may be used to explain things like route dependence, inertia, and organizational learning, giving practitioners and academics insightful information. The BTF's shortcomings and detractors are also looked at. Some contend that the theory lacks precise predictive power and is difficult to operationalize in empirical study, despite the fact that it provides a more realistic representation of organizational behavior.