Causal Inference as an Organizational Problem

Research on organizations generally presumes that their leaders have the ability to direct the organization towards a set of goals. That presumption, however, depends crucially on the ability of leaders to understand how particular actions or directives might influence organizational outcomes, a problem of causal inference. We develop a formal model of this problem in which managers attempt to infer the effects of possible directives based on what they can observe. Our model reveals that inference only becomes a problem under specific conditions but these conditions seem common in real-world settings. We discuss how a variety of organizational features might mitigate this inference problem.