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... , 1986. 57. For an overview, see McKelvey 1997. 58. See also Simon 1979 The focus on organizational architectures allows to examine whether it is possible to minimize false human decisions through a resourceful combination of organi- zational layers. 59 The core idea is that in a hierarchical organization, an activity can only be realized if all organ- izational layers have approved it. It is intuitively clear that the likelihood of approval is quite low in such a set- ting because it must go through multiple hierarchical filters, each of which has to approve an activity. Thus, while rejecting many hazardous activities, a hierarchical organizational design also rejects many harmless activi- ties. Rejection of harmless activities is one of the limita- tions of the hierarchy. In contrast, a polyarchical organi- zational design ensures decentralized decision-making. The polyarchy consists of several organizational layers which can approve a project independently from each other. Thus, decentralized polyarchical organization is more likely to approve wrongful activities, but its advantage is that it accepts more harmless activities than a hierarchical design. 60 The main features of the two generic types of organiza- tional design are depicted in Figure 1. 61 Assume that an organization consists of organizational units A and B, each of which can approve a project P with the probabil- ity of 50 percent. Then, the polyarchy approves the project with the probability of 75 percent (P(A) or P(B)), while the hierarchy approves it with the probabil- ity of 25 percent (P(A) and P(B)). 62 Consequently, the polyarchy makes less errors of the 'missed opportunity' nature (Type I errors, or omission errors) than the hier- archy, but simultaneously commits more errors of the 'bad investment' nature (Type II errors, or commission errors) than the hierarchy. The reverse applies to the hierarchy. The hierarchy rejects more projects which should have been accepted. 63 Thus, hierarchies and ...
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