Signposts for Problemistic Search: Reference Points and Adaptation in Rugged Landscapes

Reference points form an essential element of organizations’ problemistic searchand adaptation behavior. Yet, if search is triggered by shortfalls compared with peers butalternatives are discovered on the fly, it is not clear whether and when peer comparisonleads to better search outcomes. We contribute to the literature by studying how referencepoints guide search and which outcomes they allow organizations to achieve. Specifically,we develop a model of search in complex landscapes in which agents’ search behavior isguided by an upper (aspiration-level) social reference point and a lower (survival-point)social reference point. In our model, agents move across a subjective “terraced” landscapethat is a simplified transformation of the “real” one. The vertical positions and shapes ofthese terraces are determined by the agents’ reference points and change over time as aresult of their own and their peers’ performance evolution. In turn, these terraces definethe search space that is navigated and the outcomes that can be reached. We show that theupper and lower bounds play fundamentally different roles in the search process, with theupper bound being more important in the short run and the lower bound more importantin the long run. Studying heterogeneous populations, we find that reference points drivedynamic trade-offs between how easily decision makers can reach their aspiration leveland how much they benefit from doing so. We highlight the importance of both internal fitbetween reference points and external fit with environmental factors.