Summer 2

ORGANIZATION SCIENCE

V . 2, N . 1, Feb a 1991

P ed U.S.A.

EXPLORATION AND EXPLOITATION IN ORGANIZATIONAL LEARNING *

JAMES G. MARCH

G ad a e Sch f B e , S a f d U e ,

S a f d, Ca f a 94305

Th a e c de he e a be ee he e a f e b e a d he

e a f d ce a e ga a a ea g. I e a e e c ca

a ca g e ce be ee he , a c a h e d ced b he d b f

c a d be ef ac e a d ace, a d he effec f ec g ca e ac . T

ge e a a g he de e e a d e f edge ga a a e

de ed. The f he ca e f a ea g be ee e be f a ga a a d a

ga a a c de. The ec d he ca e f ea g a d c e e ad a age

c e f ac . The a e de e a a g e ha ada e ce e , b

ef g e a e a d ha e a , a e e bec e effec e he h

b e f-de c e he g . The b ha ce a c ga a a

ac ce a e a e ha e de c a e ed.

(ORGANIZATIONAL LEARNING: RISK TAKING; KNOWLEDGE AND COMPETI- TIVE ADVANTAGE)

A ce a c ce f d e f ada e ce e he e a be ee he e a f e b e a d he e a f d ce a e (Sch e e 1934; H a d 1975; K a 1988). E a c de h g ca ed b e ch a ea ch, a a , a g, e e e a , a , f e b , d c e , a- . E a c de ch h g a ef e e , ch ce, d c , eff c e c , e ec , e e a , e ec . Ada e e ha e gage e a

he e c f e a a e e f d ha he ffe he c f e e e - a h ga g a f be ef . The e h b a de e ed e dea a d e d c e c e e ce. C e e , e ha e gage e a he e c f e a a e e f d he e e a ed b a ab e e b a. A a e , a a g a a a e ba a ce be ee e a a d e a a a fac e a a d - e .

Th a e c de e a ec f ch b e he c e f ga a- . B h e a a d e a a e e e a f ga a , b he c e e f ca ce e ce . A a e , ga a a e e c a d c ch ce be ee he . The e c ch ce a e f d ca c a ed dec ab a e a e e e a d c e e a eg e . The c ch ce a e b ed a fea e f ga a a f a d c , f e a e, ga a a ced e f acc a g a d ed c g ac , ea ch e a d ac ce , he a h ch a ge a e e a d cha ged, a d ce e e . U de a d g he ch ce a d g he ba a ce be ee e a a d e a a e c ca ed b he fac ha e f he a h e ec he e ec ed a e , b a h e ec he a ab , he g, a d he d b h a d be d he ga a . P ce e f a ca g e- ce be ee he , he ef e, e b d e e a , e a , a d e - e a c a , a e a efe e ce . The d ff c e ed a g

*Acce ed b Lee S. S a d M chae D. C he ; ece ed A g 18, 1989.

71

1047-7039/91/0201/0071/$01.25 C gh ?) 1991, The I e f Ma age e Sc e ce

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72 JAMES G. MARCH

ch c a ead c ca ec f g a a e ade- ff , a d ach e g he .

1. The E a / E a T ade-Off

E a a d E a The e f O ga a a Ac

I a a de f ch ce, he ba a ce be ee e a a d e a d c ed c a ca e f a he f a a ea ch (Rad e a d R h ch d 1975; He 1982). I a ed ha he e a e e e a a e a e e e - e , each cha ac e ed b a bab d b e e ha a . I f a ab he d b acc a ed e e, b ch ce be ade be ee ga g e f a ab a e a e a d h - g f e e ( h ch gge a ca g a f he e e ea ch g a g ce a a e a e ), a d g he f a c e a a ab e e e e e ( h ch gge c ce a g he e e he a a - e be a e a e). The b e c ca ed b he b e ha e e e a e a e a a ea , ha bab d b a be ab e, ha he a de e d he ch ce ade b he .

I he e f ed a a , d c f he ch ce be ee e a a d e a e ha e he e f a ge a a e e eg a g a ca ea ch (C e a d Ma ch 1963). The a a ha ea ch h b ed f he efe ed a e a e ab e (b he e ghb h d f) he a ge . O he he ha d, ea ch a ed f he efe ed a e a e be- he a ge . S ch dea a e f d b h he e f a f c g (S 1955) a d ec he (Kah e a a d T e 1979). The ha e ed a e ec f c d de h ch a ge - e ed ea ch e a e a (Da 1967). Beca e f he e f a ge , d c f ea ch he ed a a ad e ha e he g f ca ce f he ada e cha ac e f a a he e e (Ma ch 1988).

I d e f ga a a ea g, he b e f ba a c g e a a d e a e h b ed d c ade be ee ef e e f a e g ech g a d e f a e e (W e 1971; Le ha a d Ma ch 1981). I c ea ha e a f e a e a e ed ce he eed h h ch a e g e a e ed. I a c ea ha e e c e e ce a e g ced e a e e e e a h he e a ac e (Le a d Ma ch 1988). F d g a a a e ba a ce ade a c a d ff c b he fac ha he a e e cc a e e f a e ed e -a he d d a e e , he ga a a e e , a d he c a e e e .

I e a de f ga a a f a d ech g e , d c f he ch ce be ee e a a d e a a e f a ed e f ba a c g he ce e f a a a d e ec (A hb 1960; Ha a a d F ee a 1987). Effec e e ec a g f , e , ac ce e e a a , b a he ge e a f e a e a e ac ce , a c a a cha g g e - e . Beca e f he a g e e a b e ce, ga a a d e , a d c e e ad a age, he e a d a ce f a ga a a ac ce e e he e a be ee he a e f e a a a ef ec ed b he ac ce a d he a e f cha ge he e e . I h , f e a e, ha bee a g ed ha he e e ce f ga bage-ca dec ce e ga a e a ed he d e ad a age he de a d f e a e ab e e e , he a ed h he e ec e eff c e c f c e a a a (C he 1986).

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EXPLORATION & EXPLOITATION IN ORGANIZATIONAL LEARNING 73

The V e ab f E a

C a ed e f e a , e f e a a e e a ca e ce a , e e e e, a d ga a a e d a f he c f ac a d ada . Wha g d he g a a g d he h . Wha g d a a a c a h ca e a a g d a a he e. Wha g d f e a f a ga a a a g d f a he a . Wha g d f a ga a a a g d f a a ge c a e f h ch a a . A ga a ea f e e e ce h d de e ce be ee e a a d e a , h d b f c e e ce ac e a d ace affec he e ea ed. The ce a , eed, , a d c a f feedbac e e a c e e ce e c a d e ec e ha he ca e h e a . The d a f . Ba c e ea ch ha e ce a c e , ge e h , a d e d ff e effec ha d e d c de e e . The ea ch f e dea , a e , e a ha e ce a c e , ge e h , a d e d ff e effec ha d e f he de e - e f e g e .

Beca e f he e d ffe e ce , ada e ce e cha ac e ca e e - a e a d ha e a . The e ad a age f e a c a e. Each c ea e c e e ce a a ac c ea e he e h d f e a d f e gag g ha ac , he eb f he c ea g he c e e ce a d he e - h d (A g a d Sch 1978; Da d 1985). The effec e e d, h gh e e e a e , he h h he ea g ga a e ac (Ka a d Sha 1986; Da d a d B 1988). Rea h b f h e ; ea g a d a h b e e e a . Th a acc de b a c e e ce f he e a a d a a f he effec f e a , a e a he ec a d e c ec ed e .

S ce e f a ce a f c f e a e f a ac a d e e c e e ce f -a ga a a , ga a e h b c ea g e e e e ce (A h 1984). P e ca feedbac d ce g a h de e - de ce (Da d 1990) a d ca ead b a e b a. I e b e f c e e ce a fe ac bec e g ea e gh e c de e ac e h h ch a ga a ha e e e e ce (He , Le ha , a d Ma ch 1985). S ce g- e ge ce de e d a g a ea ab e e e f e a , he e e de c e c ea e e a a d ed ce e a a e ada e ce e e a e f-de c e.

The S c a C e f O ga a a Lea g

The ade- ff be ee e a a d e a e h b e ec a fea e he c a c e f ga a . The e ec f he e e a e de c be e de f ada a , e he e ab a e he e a be ee e a a d e a , a d e e e ca f he e a f he acc a a d a f edge ga a . The de de f e ea h ga a a a c ea g a d gge e ced e b h ch he d .

T d c e fea e f he c a c e a e c de ed. The f he a

ea g f a ga a a d he d d a . O ga a e edge he ced e , , e , a d f . The acc a e ch edge e e, ea g f he e be . A he a e e, d d a a ga a a e c a ed ga a a be ef . S ch a ea g ha ca f de a d g a d a ag g he ade- ff be ee e a a d e a ga a . The ec d fea e f ga a a ea g c de ed he e

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74 JAMES G. MARCH

he c e f c e f ac . O ga a f e c e e h each he de c d h ch e a e a e . The ed c b f edge c e e ad a age ca e g c e f ac c ea e d ff c e f def g a d a a g g a a a e ba a ce be ee e - a a d e a a ga a a e g.

2. M a Lea g he De e e f K edge

O ga a a edge a d fa h a e d ff ed d d a h gh a f f c , d c a , a d e e f ca . A ga a c a e

ec he a g age , be ef , a d ac ce ha c e he ga a a c de

(Wh e 1957; Va Maa e 1973). S a e , he ga a a c de ada g d d a be ef . Th f f a ea g ha c e e ce b h f he d d a ed a d f a ga a a a h e. I a c a , he ade- ff be ee e a a d e a a ea g e c f c be ee h - a d g- c ce a d be ee ga d d a edge a d ga c ec e edge.

A M de f M a Lea g

C de a e de f he de e e a d d ff f ga a a edge. The e a e f e fea e he de :

(1) The e a e e a ea ha de e de f be ef ab . Rea de c bed a ha g d e , each f h ch ha a a e f 1 -1. The ( de e de ) bab ha a e d e ha e a a e f 1 0.5.

(2) A each e e d, be ef ab ea a e he d b each f d d a a ga a a d b a ga a a c de f ece ed h. F each f he d e f ea , each be ef ha a a e f 1, 0, -1. Th a e a cha ge e e.

(3) I d d a d f he be ef c a a c e e ce f c a a he ga a a d ed ca c de f be ef . S ec f ca , f he c de 0 a a c a d e , d d a be ef affec ed. I each e d h ch he c de d ffe a a c a d e f he be ef f a d d a , d d a be ef cha ge ha f he c de h bab , 1. Th , 1 a a a e e ef ec g he effec e e f c a a , .e., ea g f he c de. Cha ge he e e a d e a e a ed be de e de f each he .

(4) A he a e e, he ga a a c de ada he be ef f h e d d a h e be ef c e d h ea e d e ha d e he c de. The bab ha he be ef f he c de be ad ed c f he d a be ef h he e g a a c a d e de e d

he e e f ag ee e a g d d a he e g a d 2.1 Th , P2 a a a e e ef ec g he effec e e f ea g b he c de. Cha ge he e e a d e a e a ed be de e de f each he .

W h h e , a c d c de: a ea - e ( d e , each f h ch ha a a e f 1 -1, h de e de e a bab ); a ga a a c de - e ( d e , each f h ch a 0); a d

M e ec e , f he c de he a e a he a e a g h e d d a h e e a edge c e e ha f he c de, he c de e a cha ged. If he c de d ffe f he

a e a a c a d e a he a f a e e d, he bab ha be

cha ged a he e d f e d (1 - P2) , he e ( > 0) he be f d d a ( h he e g ) h d ffe f he c de h d e he be h d . Th f a a e he effec e a e f c de ea g de e de , h ch bab de e d . I

he e e a , a ed.

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EXPLORATION & EXPLOITATION IN ORGANIZATIONAL LEARNING 75

d d a - e ( d e , h a e e a 1, 0, -1, h e a bab e ).

Th , he ce beg h a ga a a c de cha ac e ed b e a

be ef a d e a d a e f d d a h a g be ef ha e h b , a e age, edge. O e e, he ga a a c de affec he be ef f

d d a , e e h e be g affec ed b h e be ef . The be ef f d d a d affec he be ef f he d d a d ec b h gh affec g he c de. The effec f ea a e a d ec . Ne he he d d a he ga a-

e e e ce ea . I e e edge c e b he c de c g he be ef ( c d g he fa e be ef ) f e d d a a d b d d a c - g he c de ( c d g fa e be ef ).

Ba c P e e f he M de a C ed S e

C de ch a de f a ea g f h a c ed e ha g f ed ga a a e be h a d a ab e ea . S ce ea a f he ce a e b ec cha c a ab , e ea ed a g he a e a c d a d a a e e a e ed e a e he d b f c e . I a f he e e ed he e, he be f d e f ea ( ) e a 30, he be f d d a ( ) e a 50, a d he be f e ea ed a 80. The

a a e e e f he e a d he ag de f he cha c f c a e ed de e d he e ec f ca , b he a a e e a e e e a e f a d .

S ce ea ec f ed, he a e f edge a a a c a e e d ca be a e ed a . F , he f ea ha c ec e e e ed he ga a a c de ca be ca c a ed f a e d. Th he edge e e f he c de f ha e d. Sec d, he f ea ha c ec

e e e ed d d a be ef ( a e age) ca be ca c a ed f a e d. Th he a e age edge e e f he d d a f ha e d.

W h h c ed e , he de e d e a h f ga a a a d d d a be ef , h edge e e , ha de e d cha ca he a c d a d he a a e e affec g ea g. The ba c fea e f he e h e ca be a ed : Each f he ad e be ef e e e a e d ffe e ce be ee he d d a a d he c de. C e e , he be ef f d - d a a d he c de c e ge e e. A d d a he ga a bec e e edgeab e, he a bec e e h ge e h e ec - edge. A e b eached a h ch a d d a a d he c de ha e he a e ( ece a acc a e) be ef h e ec each d e . The e b ab e.

Effec f ea g a e . H ghe a e f ea g ead, a e age, ach e g e b ea e . The e b e e f edge a a ed b a ga a a de e d e ac e he ea g a a e e . F g e 1 h he e he e a e ha 1 he a e f a d d a . S e c a a ( e 1) ead g ea e edge a e b ha d e fa e c a a , a c - a he he c de ea a d (h gh P2). Whe c a a , e a d ea g b he c de ead g ea e edge a e b ; b he c a a- a d, g ea e e b edge ach e ed h gh e ea g b he c de. B fa he h ghe e b edge cc he he c de ea a d f d d a h e c a a he c de .

The e c ed F g e 1 c f he b e a ha a d ea g a a de ab e (He , Le ha a d Ma ch 1985; L a aa a d Ma ch 1987).

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76 JAMES G. MARCH

1.00-

2=0.9

.95-

2=0.5 \

.90-

.8050

.75

.70 I I E 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

SOCIALATION RATE: ( )

FIGURE 1. Effec f Lea g Ra e (PI, P2) E b K edge. M = 30; N = 50; 80 I e a .

I e , a h ha e ea g a f g ea e e a f b e a e a e a d g ea e ba a ce he de e e f ec a ed c e- e ce . I he e e de , a d ffe e e f he a e ge e a he e b e ed. The ga d d a f ada g a d he c de ( h ch c e c e ea ha he a e age d d a ) a e ff e b ec d- de e e g f he fac ha he c de ca ea f d d a h de a e f . S ea g he a f d d a a a d e ge , he eb d g he e a ha a he edge f d he ga a- a c de e.

Effec f ea g a e he e ge e . The fac ha fa d d a ea g f he c de e d ha e a fa ab e f - de effec d d a edge b a ad e e effec e e ga a a edge a d he eb g- e d d a e e gge ha he e gh be e ad a age ha g a f fa a d ea e a ga a . S e he a f d d a a ga a d ded g , e c g f d d a h ea a d f he c de ( 1 = 0.9) a d he he c g f d d a h ea ( 1 = 0.1).

If a ga a a ed g h a , he a ea g ce ach e e a e b h ch a d d a a d he c de ha e he a e be ef . A d be e ec ed f he e ab e h e ec h ge e

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EXPLORATION & EXPLOITATION IN ORGANIZATIONAL LEARNING 77

1.0

.95 .

HEOGENEOUS

\

c HOMOGENEOUS

D a X .80 "

.75-.

.70 0.2 0.3 0.4 0.5 0.6 0.7 0.8

AVERAGE SOCUIUZA7TON RA1T ( 1)

FIGURE 2. Effec f He e ge e S c a a Ra e (P = 0.1, 0.9) E b K edge. M = 30; N = 50; P2 = 0.5; 80 I e a .

c a a a e , a ge f ac f fa ea e e he ce each g e b fa e a d e e e f edge a e b ha d a e f ac f fa ea e . H e e , a F g e 2 h , f a a e age a e f ea g f he c de, be e f he f e f e b edge ha e ha a e age ef ec a f fa a d ea e a he ha a h ge e a . F e a e a e age a e f he c a a ea g a a e e ( 1), he he e ge e a c e d ce h ghe e b edge.

O he a e b , he edge ga f a ab a e d - a e d e c b b ea e , b he a e d a e ea ed ( he edge) b fa ea e . F g e 3 h he effec e d-20 edge f a g he f ac f he a f d d a h a e fa ea e ( 1 = 0.9) a he ha ea e ( 1 = 0.1). P each g e b- , d d a h a h gh a e f 1 ga f be g a ga a h ch he e a e d d a ha g a a e f 1, b he c e e e.

The e e d ca e ha he f ac f ea e a ga a a g f ca fac ga a a ea g. I he de , ha f ac ea ed a a a a e e . D a e he e he g a d he e de e de ce a e g h e ec he f ac f ea e b e a c f he a e f d d a ea g a e b ec d d a c . S ce he e a e b d d a ce e f ea g a a h ch he a e ea g a d , a be d ff c a e a a f ac f ea e ha a f he f e f he c de f ea g a e a e a ch e b d d a .

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78 JAMES G. MARCH

.85_

.80 CODE

.75_=

FANT LEARNER

,., .70

. 65-

, AVERAGE INDIVMUAL

.60

.55

.50 /

/ SL LEARNR S

.45

.40 I I I I I 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

FRACI ON OF POPULATION WIT - P0.9

FIGURE 3. Effec f He e ge e S c a a Ra e ( 1 = 0.1, 0.9) Pe d-20 K edge. M = 30; N = 50; 1 = 0.1, 0-9; P2 = 0.5; 80 I e a .

Ba c P e e f he M de a M e O e S e

The e e ca be e e ded b e a g e a e a e e e ec e ea g a e ha e e e . S ec f ca , he e f e he ga a a d b e ce he e e a e c de ed. I he ca e f e , ga a a e be h ea ed a cha g g. I he ca e f b - e ce, e e a ea ea ed a cha g g.

Effec f e e e . I he e ec , a h ha a ab a ed b a e f 1. S ea e a de a g e gh f he c de ea f he . A a e a e a f d c g a ab a ga a d ce e e e . S e ha each e e d each d d a ha a bab , 3, f ea g he ga a a d be g e aced b a e d d a h a e f a e be ef de c bed b a - e, ha g a e e a 1, 0, -1, h e a bab e . A gh be e ec ed, he e a c e ega e f - de effec f e a e age d d a edge. S ce he e a e e a be ee e g h f e ce he ga a a d d d a edge, he g ea e he e , he h e he a e age e g h f e ce a d he e he a e age d d a edge a a . Th effec g.

The effec f e he ga a a c de e c ca ed a d ef ec a ade- ff be ee ea g a e a d e a e. F g e 4 h he e d-20 e f d ffe e a e f he c a a a e ( 1). If 1 e a e , e d-20 c de edge dec e h c ea g e . The c b a f

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EXPLORATION & EXPLOITATION IN ORGANIZATIONAL LEARNING 79

.90

.85- P1=0.9

f .75 . \S"

0

0 .70 \

0

A .60 . \

.50

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 I

TUBOS ( 3)

FIGURE 4. Effec f T e ( 3) a d S c a a Ra e ( ) Pe d-20 C de K edge. M = 30; N = 50; P2 = 0.5; 80 I e a .

ea g a d a d e ead ade a e e a . H e e , f , e a e h gh, de a e a f e e he ga a a c de. Ra d c a a f d d a he ced e a d be ef f a ga a e d ed ce e a . A de e e f e , b d c g e c a ed e e, c ea e e a , a d he eb e agg ega e edge. The e e f edge ef ec ed b he ga a a c de c ea ed, a he a e age d d a edge f h e d d a h ha e bee he ga a f e e. N e ha h effec d e c e f he e edge f he a e age e ec . Rec a e, a e age, e edgeab e ha he d d a he e ace. The ga c e f he d e .

T e , e he e ge e ea g a e , d ce a d b b e . C b g he c de (a d b e e d d a edge) c e f he cca a e c e h de a e f he c de a fa ab e a . O d- e , a e age, e, b ha he ed da h edge a ead ef ec ed he c de. The a e e e c b e e edge he a g . N ce e a e age, b ha he e ed da h he c de a d cca a be e , h e e c b e g he c de.

Effec f e e a b e ce. S ce ea g ce e e ag ad - e cha ge , he c b f ea g edge de e d he a f b e ce he e e . S e ha he a e f aY g e d e f e.a ,h f . (f 1 - 1 - 1 1) ag e e- e d h bab 4.-

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80 JAMES G. MARCH

.70'

.65 -

.60 WM \ TH TURNOVER ( 3(0.1)

.55-

.50

.45-

0 .40

M .35I

0 U

.4 30

.25-

.20 WTHOTTROVE ( 3=0)

.05-

10-

5 15 25 35 45 55 65 75 85 95

TM PEIOD

FIGURE 5. Effec f T b e ce ( 4) C de K edge e T e h a d W h T e ( 3).

M = 30; N = 50; 1 = 0.5; P2 = 0.5; 4 = 0.02; 80 I e a .

Th ca e a e e e a a he dea ha de a d g he d a be

c ca ed b b e ce he d. E ge e e a cha ge a e

ada a e e a , b a a e ea g f e e e ce d ff c (We c 1979). I he de , he e e f edge ach e ed a a c a ( e a e ea ) e e d dec ea e h c ea g b e ce.

I add , a ea g ha a d a a c g- dege e a e e de c d f e ge b e ce. A he be ef f d d a a d he c de c e ge, he b e f e e e he dec e. O ce a edge e b ach e ed, a ed def e . The be ef ef ec ed he c de a d h e he d b a d d a e a de ca a d cha g g, ega d e f cha ge ea . E e bef e e b ach e ed, he ca ab e f cha ge fa be he a e f cha ge he e e . A a e , af e a a e d f

c ea g acc ac , he edge f he c de a d d d a e a ca deg aded h gh cha ge ea . U a e , he acc ac f be ef eache cha ce ( .e., he e a a d cha ge ea a e c ea e acc ac f be ef a dec ea e ). The ce bec e a a d a .

The dege e ac a ded f he e e . F g e 5 he a e age e e f c de edge e e de c d f b e ce ( 4 = 0.02). T ca e f ea g a e ed, e h e ( 3 = 0), he he h de a e e ( 3 = 0.1). Whe e he e b e ce h e , c de edge f e a de a e e e , a d he dec e 0, f h ch b e e a de a d . W h e , he dege e ac a ded a d a de a e e e f c de edge a ed he face f e e a cha ge. The e effec f de a e e de e d, f c e, he e f e ec g e ec . I he

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EXPLORATION & EXPLOITATION IN ORGANIZATIONAL LEARNING 81

e e ca e, ec e affec ed b he c de. Re ac g de a g d d a h ec c e he c e ga a a c de d g f ca ed ce he eff c e c f e a a ce f e a .

T e ef he face f b e ce, b d ce a d a be ee c de edge a d he a e age edge f d d a he ga a . A a e , he a ch be ee e a e a d e e f b e ce ha de ab e f he f e f he ga a ' edge ece a de ab e f he f e f he edge f e e d d a , d d a a e age. I a c a , he e he e b e ce, he e c de ab e d d a ad a age ha g e e a ga a ha ha e . Th ee e d ce e e b d d a ec e e e f he e e h e e c g f he .

3. K edge a d Ec g e f C e

The de he e ec e a e e a ec f he c a c e f ada a ga a , he a h ch d d a be ef a d a ga a- a c de d a f each he e e. A ec d a fea e f he c a c e f ga a a ea g he c e e ec g h h ch ea g cc a d edge ed. E e a c e e ce e ga a aga each he f ca ce e e a e ce a d e . E a e a e c e a g b e f f c e a d g e e a b d e . I e a c e e ce e d d a he ga a aga each he c e f ca ce ga a a e ce a d e . E a e a e c e a g a age f e a e ce a d h e a ch ca . I he e ec g e f c e , he c e e c e e ce f ea g b e ga a de e d ea g b he ga a . I h ec , he e a g ea g, e f a ce, a d a ec g f c e a e d c ed b c de g e a h ch c e e ad a age affec ed b he acc a f edge.

C e a d he I a ce f Re a e Pe f a ce

S e ha a ga a ' ea ed e f a ce a a c a cca a d a f a bab d b ha ca be cha ac e ed e f e ea e f a e age a e ( ) a d e ea e f a ab ( ). K edge, a d he ea g ce ha d ce , ca be de c bed e f he effec

he e ea e . A cha ge a ga a ' e f a ce d b ha c ea e a e age e f a ce ( .e., a e ' > ) f e be be ef c a a ga a , b ch a e a ed he e a e h a g f c e g ga a a . Whe e e e c e a e c de e ed b ha c e ' e f a ce b de e d he e a e a d g f he c e , e cha ge edge de e d he ag de f he cha ge he e ec ed a e b a cha ge a ab a d he be f c e .

T a e he he e , c de he ca e f c e f ac be ee a efe e ce ga a a d N he ga a , each ha g a e f a ce d b h ea = a d a a ce = . The cha ce f he efe e ce ga a ha g he be e f a ce h a g f de ca c e 1/(N + 1). We c a e h a e h ch he efe e ce ga a ha a a e f a ce d b h ea = ' a d a a ce = '. We e a a e he bab , P *, ha he ( ', ') ga a e f a f he N ( , ) ga a . A e f a ce d b h a ea f ' a d a a a ce f ' de a c e e ad a age a c e f ac f P *

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82 JAMES G. MARCH

2.0C

N=100

1.6-

.8 N=1O

..

0 0C

.4

0 0.1 02 0.3 0.4 0.5 0.6 0.7 0.8 0.9 I 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2

VARUNCE ( ') OF THE PERFORMANCE DION FIGURE 6. C e e E a L e (P* = 1/(N + 1)) f O e ( ' ') O ga a C e g h N (0, 1) O ga a (N a Pe f a ce D b ).

g ea e ha 1/(N + 1). I e a c e e d ad a age f P * e ha 1/(N + 1).

If a ga a face e c e (N = 1), ea ee ha a ad a age ea e f a ce he a f he efe e ce ga a a e P* g ea e ha 1/(N + 1) = 0.5, ega d e f he a a ce. Th , b a e a c e - g a e f a ce d b , ea g ha c ea e he ea a a a ff, a d cha ge he a a ce- he he e ega e-ha e effec .

The a cha ge a N c ea e . F g e 6 h he c e e cce (fa e) f a ga a ha g a a e f a ce d b h a ea = a d a a a ce = ', he ha ga a faced h N de ca a d de e - de c e h e e f a ce d b a e a h ea = 0 a d a a ce= 1. Each he ace F g e 6 e e e a d ffe e b e a e f a ce d b ( ', '). Each e he f g e a c a ed h a a c a N a d c ec he ( ', ') a f h ch * = 1/(N + 1).2 The a ea he gh a d ab e a e c de ( ', ') c b a f h ch P * g ea e ha 1/(N + 1), h ha e d a c e e ad a age e a e (0, 1). The a ea he ef a d be a e c de ( ', ') c b a f h ch P* e ha 1/(N + 1), h ha e d a c e e d ad a age e a e (0, 1).

2The e a e c c ed b e a g, f each a e f ' f 0 2 e f 0.05, he a e f ' f h ch * = 1/(N + 1). Each e a e ba ed 5000 a . S ce f ' = 0 a d ' = 1, P*= 1/(N + 1) f a N, each f he e c a ed a h gh he (0, 1) .

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EXPLORATION & EXPLOITATION IN ORGANIZATIONAL LEARNING 83

The a e c ea . If N g ea e ha 1 (b f e), c ea e e he he ea he a a ce ha e a e effec c e e ad a age, a d ff c e a ge

c ea e e he ca ff e dec ea e he he . The ade- ff be ee c ea e

he ea a d c ea e he a a ce g affec ed b N. A he be f

c e c ea e , he c b f he a a ce c e e ad a age

c ea e a he , a N g e f , he ea bec e e e a .

Lea g, K edge, a d C e e Ad a age

The effec f ea g a e ea ed cha ge he e f a ce d b . The

a a d ca e ha f ea g c ea e b h he ea a d he a a ce f a a e f a ce d b , e c e e ad a age a c e -

f ac . The de a gge ha c ea e he a a ce a c e a e f dec ea e he ea ; dec ea e he a a ce a f ga f c ea e he ea . The e a a ce effec a e a c a g f ca he

he be f c e a ge. The de g a g e d e de e d c e be g f ac .

S ch c e a ec a ca e f c e f e a e . The ge e a c e ha e a e affec ed b a ab , a d c ea g a he

be f c e c ea e , e f a . I c e ach e e

e a e h gh , a ab ha a e effec . I c e a d e a e , a ab ha a ega e effec .

N d e he de g a g e de e d he a f a he

e he e f a ce d b . N a - e f a ce d b a e ec a ca e h ch he a f he d b a e ec f ed he he ea a d

a a ce a e ec f ed. F ge e a d b , a he be f c e c ea e , he e h d f f h g f de e d c ea g he gh -ha d a

f he e f a ce d b , a d he e h d f f h g a de e d c ea - g he ef -ha d a (Da d 1981). If ea g ha d ffe e effec he a f he d b , he gh -ha d a effec be ch e a c e f ac a g a c e . The ef -ha d a be ch e a c e a d f h g a .

S e ea g ce e c ea e b h a e age e f a ce a d a ab . A a da d e a e d be he h - c e e ce f ad f a e ech g . If a e ech g c ea e a e c e he d ad a - age f fa a h , ffe a h ghe e ec ed a e ha he d ech g . A he a e e, he ed e e e ce h he e ech g ( e a e e e e ce h he d) ead a c ea ed a a ce. A a e gh be e ec ed h he d c f a e b d f edge e

e e e f c a d e a ga a , f e a e, h gh he d c- f d d a h ca , a de , e h c , ge de .

Lea g ce e d ece a ead c ea e b h a e age e f - a ce a d a a , h e e . I c ea ed edge ee f e ed ce he a ab f e f a ce a he ha c ea e . K edge a e e f a ce e e ab e. A a da d ed, a ech e a e ea ed, a ab , b h he e e ed acc h a a d he a f a e f a ce, ed ced. I fa a ha c ea e e ab c e f a ed c he ef -ha d a , he e h d f f h g a a c e a g a ed ced h cha g g he e h d f f h g f . H e e , f edge ha he effec f ed c g he gh -ha d a f he d b , a ea dec ea e he cha ce f be g be a g e e a c e e e h gh a c ea e a e age e f - a ce. The e he he ca d e ce a e , a ed be e ha a e age, h ea g he c f e f c e a ac . The a e

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84 JAMES G. MARCH

c ca ed, f de e d a e ca ef ec f ca f he d f edge ed a d ec e effec he gh -ha d a f he d b . B edge ha a e c ea e a e age e f a ce a d e ab

a g a a ee f c e e ad a age. C de , f e a e, he ca e f de f a a d dec ech g

ba ed c e . I ca e he e e a c a a , f a ech g ha a a effec he ea , e he a a ce. S e b e

e e a ca g f e , cha ge , e bab fa ch a ca eg . U de ch c d , a a e e f f a ech g

ee e e c e e . O he he ha d, a a he a effec f f a ech g a e c e e e ab e. F

e a e, add a da a, e de a ed a a e , ee e c ea e e ab dec e a d ha he c ea e he a e age e . I ch ca e , he effec he a a e e d a e he effec he ea . The e effec f he ed ech g he cha ce f a d g be g he c e be e, b he effec he cha ce f f h g a he head f he ac a e be ega e.

S a , e, de e de ec a ha e a ad a age e a g e, c d a ed eff . The a e age e f de e de ec e be e ha ha ea ed f a c d a ed e, b he gh -ha d de a ab ca c e a e f he ed ced ea a c e f ac . The a g e ca be e e ded e ge e a he effec f c e c ab a c e a e f a- e cha ge. O ga a ha de e effec e e f c d a a d c ca bab ca be e ec ed d be e ( a e age) ha h e ha a e e e c ed, a d he a bab ca be e ec ed bec e e e ab e, e e de a e g f ca f he ea f he e f a ce d b . The ce f e ab , h e e , a a e cha ce f ac a g

c e .

C e f Re a e P a d S a eg c Ac

The a g e ab e a e ha he e e a d d a e f a ce f c e - a e de e de d a f a d b f b e e f a ce , a d ha he d b ca be a b a ch e b he c e . S ch a e ec e c e e. I b e ee b h he ea a d he e ab f a e f a ce d b (a ea a a ) a ch ce ade a eg ca . I he g , he e e e he e f ga a a ch ce be ee e e ea g a d c f he f f c e ca ab e , h he ce a f c f h a e . I he h , he ch ce f ea ca be ee a a ch ce f eff a e . B a g eff , a ga a e ec a e f a ce ea be ee a e e e ( e -eff ) a d a ca ab ( a -eff ) e e . S a , he h , a a he e ab f e f a ce ca be ee a ch ce f edge ha ca be e f h he a ge f a a ab e a e a e .

The e ch ce , fa a he a e ade a a , , ge e a , be de e de f c e . If e a e a e , a he be f c e -

c ea e , a eg e f c ea g he ea h gh c ea ed eff g ea e edge bec e e a ac e e a e a eg e f c ea g a ab . I he e ge e a a , e ga a face c e f e c e h a he a e age ca ab e b h ca ch e he a a ce . If a ff a d efe e ce a e ch ha f h g ea he a e a g ea dea , h e ga a h e f a ce d b cha ac e ed b c a a e ea ( f he ca ) be g ac f ce a e age e f a ce de a g e he gh -ha d a f he e f a ce d b . I h a , he

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EXPLORATION & EXPLOITATION IN ORGANIZATIONAL LEARNING 85

e he cha ce f g, h f ce he e a e ed c e d e e, a d he eb c e he c e a gh -ha d a " ace" h ch

a e age e f a ce (d e ab a d eff ) bec e e e a . The e d a c c e e f c e a g f ce he e de c f e e e ce e a e e a a d a e a e de ha he ea g d a ce f e a , de

e c c a ce , c a ed b ea g a d e b a b ea .

4. L e M de a d O d W d

Lea g, a a , a , ege e a , a d ech g ca cha ge a e a

c e f a eff e ga a a e f a ce a d e g he

c e e ad a age. Each e ada a a d a de ca e ade- ff be ee e a a d e a . The e e a g e ha bee ha he e ade- ff a e affec ed b he c e f d b ed c a d be ef a d ec g ca e ac .

The e e ce f e a he ef e e a d e e f e g c e e ce ,

ech g e , a d a ad g . I e a e e, a e, a d ed c ab e. The e e ce f e a e e e a h e a e a e . I e a e ce a , d a , a d f e ega e. Th , he d a ce e a d ace be ee

he c f ea g a d he c f he ea a f e ge e a g ea e

he ca e f e a ha he ca e f e a , a he ce a .

S ch fea e f he c e f ada a ead a e de c b e e a f a e a e f he e a f e , c ea e

he e ab f e f a ce a he e ha ea . Th e f ada e ce e e a e f-de c e. A e ha e ee , deg ade ga a a

ea g a a ea g a . M a ea g ead c e ge ce be-

ee ga a a a d d d a be ef . The c e ge ce ge e a ef b h f d d a a d f a ga a . H e e , a a h ea he effec e e f ch ea g he b ha d d a ad a ga a a c de bef e he c de ca ea f he . Re a e c a a f e ga a- a e be a d de a e e a a ab d d a be ef , he eb g ga a a a d a e age d d a edge he g .

A e ha e a a c e c e e he e f h g ea he a . K edge-ba ed c ea e a e age e f a ce ca be ff c e e c e he ad e e effec d ced b ed c a ab . The a b g ef e f ea g a c e e ace a a fac f e e e g edge e f he ea a d a a ce f a a d b .

The e fac he effec f edge he gh -ha d a f he e f a ce d b . Th , he e d, he effec e f he e a be ee edge a d d c e . M chae P a , c e g e f h c b h c , b e ed (P a 1963, . 1013) ha "I d e e ha e c ce ed he , e a e ha e ade a g ea eff e f , f I had bee e fa a h a de e e h c ha e e a g ace. M e e , a g a ce f he e f , fa e b ec ha e e a ed aga dea ec ed h e dea f be g ed he b d."

The e b e a d e he e a a ce. K edge, ea g, a d ed ca e a a f d a e f h a e -be g. A be , he de e e ed he e gge e f he c de a ed h g ab ch ce be ee e a a d e a a d a g e a he face f ada e ce e ha e d h b . The c e f he d b - f c a d e ac e a d g a e a e c de e a f a a a e e c e. B a be c e ec f e e e e

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86 JAMES G. MARCH

f f d a e g ha he e fa ea g a e a e, ha a d c a a a h he c a e e e a he he c a ed, ha he

de e e f edge a de e d a a g a f f he a e a d

g a , a d ha c e e c d e e ab g he e ed ca ed.

Ac edg e

Th e ea ch ha bee ed b he S e ce F da a d he G ad a e Sch f B e ,

S a f d U e . The a h g a ef f he a a ce f M chae P ch a d S a e S a d f

he c e f M chae C he , J e E h, Th a F h , J. M chae Ha , J. R cha d Ha , Da d Ma he , Ma Sch , S S a d Lee S .

Refe e ce

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