Diego Stea

Putting a Realistic Theory of Mind into Agency Theory: Implications for Reward Design and Management in Principal‐Agent Relations

Agency theory is one of the most important foundational theories in management research, but it rests on contestable cognitive assumptions. Specifically, the principal is assumed to hold a perfect (correct) theory regarding some of the content of the agents mind, while he is entirely ignorant concerning other such content. More realistically, individuals have some limited access to the minds of others. We explore the implications for classical agency theory of realistic assumptions regarding the human potential for interpersonal sensemaking. We discuss implications for the design and management of rewards, and trace implications for value creation in principal‐agent relations.

The Relational Antecedents of Interpersonal Helping: ‘Quantity’, ‘Quality’ or Both?

Having a large network of colleagues means having several opportunities to help those colleagues, as well as a higher chance of receiving requests for help from them. Employees with large networks are therefore expected to help more in the workplace than those with small networks. However, large networks are also associated with cognitive costs, which may reduce the focal employees ability to both recognize the need for help and engage in helping behaviours. For these reasons, the authors assert an inverted U-shaped relation between the size of an egos social network and engagement in helping behaviour. However, high-quality relationships imply higher mutual understanding between the actors, and hence lower cognitive costs. In turn, the position (and threshold) of the curve between network size and interpersonal helping should be influenced by the quality of the relationship between the provider and the beneficiaries of help. Analysis of employee-level, single-firm data supports these ideas, providing preliminary evidence that quality of relationship compensates for the difficulties that may arise from having large social networks.

Understanding Organizational Advantage: How the Theory of Mind Adds to the Attention-Based View of the Firm †The authors contributed equally.

The attention-based view (ABV) of the firm highlights the role of decision makers’ attention in firm behavior. The ABV vastly improves our understanding of decision makers’ focus of attention; how that focus is situated in an organization’s procedural and communication channels; and how the distribution of the focus of attention among decision makers participating in those procedural and communication channels affects their understanding of a situation, their motivation to act, and, ultimately, their behavior. Significant progress has been made in recent years in refining and extending the ABV. However, the role of individual differences in the capacity to read other people’s desires, intentions, knowledge, and beliefs – that is, the theory of mind (ToM) – has remained on the sidelines. The ToM is a natural complement to the ABV. In this study, we explore how the ToM allows for an understanding of the advantage that organizations have over markets within the ABV.

Not all brokers are alike: Creative implications of brokering networks in different work functions

Brokers are expected to be more creative than employees embedded in closed social structures because they occupy a position in the social space that provides them with access to non-redundant knowledge. However, the extant research provides partly inconsistent findings on the creative implications of brokerage, which raises important questions about when and how brokering between otherwise disconnected colleagues leads to individual creativity. We advance the relational perspective on individual creativity by adopting a contingency view, and showing that a curvilinear (inverted U-shape) specification of the relationship between brokerage and creativity applies particularly when brokers work in research and development, as they are more likely to intensively exploit their structural opportunities. In addition, we show that brokers who work in research and development are more sensitive to work environments that protect their cognitive resources, such that they exhibit greater creativity when the work environment is free from environmental stressors, such as noise and disturbances. Thus, environmental stressors are particularly harmful for those employees who are most likely to exploit the opportunity to broker across otherwise disconnected colleagues.

Network Structure, Collaborative Context, and Individual Creativity:

The debate on whether bonding or bridging ties are more beneficial for acquiring knowledge that is conducive to individual creativity has mostly overlooked the context in which such ties are formed. We challenge the widespread assumption that closed, heavily bonded networks imply a collaborative attitude on the part of the embedded actors and propose that the level of collaboration in a network can be independent from that network’s structural characteristics, such that it moderates the effects of closed and brokering network positions on the acquisition of knowledge that supports creativity. Individuals embedded in closed networks acquire more knowledge and become more creative when the level of collaboration in their network is high. Brokers who arbitrage information across disconnected contacts acquire more knowledge and become more creative when collaboration is low. An analysis of employee-level, single-firm data supports these ideas.

Epistemics at Work: The Theory of Mind in Principal-Agent Relations

Agency theory studies the impact of and remedies to asymmetrically distributed information in principal-agent relations. Yet, it does so in a surprisingly binary manner: it assumes the principal to be perfectly knowledgeable of some pieces of information (such as the agent’s risk aversion), while others (such as the agent’s true effort exerted) are considered to be perfectly private information of the agent. Agency theory thus makes very asymmetrical assumptions about the knowledge of principals and agents, largely neglecting the human capacity for interpersonal sense-making. This chapter explores the implications of instilling agency theory with a more realistic account of the human capacity to read other people’s desires, intentions, knowledge, and beliefs — that is, to have a theory of someone else’s mind.

The Principal’s Theory of Mind: The Role of Mentalizing for Reward Design and Management in Principal-Agent Relations

Agency theory is one of the most important foundational theories in management research, but it rests on tenuous cognitive assumptions. We combine classical agency theory with a realistic theory of the intrinsically imperfect human potential for interpersonal sensemaking. This allows us to systematically show how the principal’s ability to mentalize with the agent influences value creation in principal-agent relations, and to link this to organizational sensemaking instruments.