Revisiting the Unitary Actor Assumption: Toward Realistic Aggregation of Individual Preferences in Strategy Research

TL;DR

This paper introduces a mathematical framework to derive organizational utility functions from individual preferences, accounting for aggregation structures, thus enabling more realistic strategic analysis of firms as coalitions.

Contribution

It develops an operational method to construct organizational utility functions from individual preferences using explicit aggregation structures, bridging behavioral insights with strategic modeling.

Findings

Aggregation structures influence organizational risk preferences

Unanimity amplifies risk aversion, polyarchy promotes risk-seeking

Framework applied to Cournot and principal-agent models

Abstract

The long-standing unitary-actor assumption in strategy research -- treating firms as monolithic entities with coherent preferences -- misses that organizations are coalitions of individuals with diverse and often conflicting goals. Although behavioral perspectives have challenged this assumption, the field lacks an operational method for deriving an organizational utility function from the disparate preferences of its members and the specific structures used to aggregate them. We develop a mathematical framework that (i) maps individual utility functions into choice probabilities via a random-utility model, (ii) combines those probabilities using an explicit aggregation structure (e.g., unanimity or polyarchy), and (iii) recovers an organizational utility function that rationalizes the collective behavior. This establishes organizational utility functions as operationally meaningful: they summarize and predict organizational choice, yet are generally not simple averages of members' utilities. Instead, aggregation structures systematically reshape preferences -- unanimity approximates the pointwise minima of underlying utility functions, amplifying risk aversion; polyarchy approximates the pointwise maxima, promoting risk-seeking. We illustrate strategic implications in Cournot competition and principal-agent settings, showing how internal aggregation structures shift competitive and collaborative outcomes. Overall, the framework provides a parsimonious way to retrofit unitary-actor models with behaviorally grounded organizational preferences, reconciling the coalition view of the firm with rigorous and tractable strategic analysis.