Abstract: The literature on organizational performance and self-regulating feedback loops tends to focus on reform under-reactions. Why, despite multiple negative stimuli, do organizations fail to adapt sufficiently to reduce the gap between aspirations and achievements? Explaining the reverse situation, in which disproportionately large remedial action is undertaken in response to only slight organizational errors, usually involves entirely different ways of theorizing organization-environment relations, such as neo-institutionalist accounts of legitimacy-seeking managers. Yet it is possible to explain over-reactions from within the functionalist paradigm by considering how negativity bias affects error detection and diagnosis in organizations. Negativity bias, the tendency to observe, explain and respond to negative stimuli disproportionately relative to their incidence or impact, causes maladaptation in organizations due to the systematic exaggeration of defects and disregard of successes, and the misallocation of resources that results. This is especially likely in organizations that are already high-performing (since the atypical “bad” stands out more prominently from the prevalent “good”), and in public sector organizations like the civil service (due to the negativity bias built into oversight institutions).
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