Defence of doctoral thesis in the field of industrial engineering and management, M.Sc.(Tech) Joosef Valli

Title of the doctoral thesis is "Cognition, Complexity, and the Financial Crisis: The Federal Open Market Committee's Search for a Monetary Policy Strategy"

Complexity theory characterizes organizations as systems of interdependent activities where choices to any one activity have hard-to-predict consequences elsewhere.

The underlying premise of the thesis is that complexity matters, that interdependencies are an inherent part of organizational decision making. However, because extant research has been mostly conducted using computational methods, especially simulations, we have only limited knowledge about how flesh and blood decision makers, facing real-world problems, deal with complexity. The thesis sheds light on the matter by investigating, with qualitative methods, decision makers at the Federal Reserve, the United States central bank, during the financial crisis of 2008-2009. The thesis investigates how these decision makers took interdependencies in the policy environment into account and asks how they could have done better in this regard.

The thesis finds wide differences among individuals in how much complexity was attended, depending especially on the application of cognitive frames to the decision making problem. Low complexity was attended by applying a single frame at a time as the frame focused decision makers’ attention to a small segment of the complex problem. Intermediate complexity was built on top of low complexity over time as decision makers learned to deal with the initial small problem segment and then expanded their domain of search. Usually this was accomplished by switching to a different frame highlighting a different portion of the problem. In order to achieve very high levels of complexity, switching between frames was crucial. Once high complexity had been reached, decision makers iterated on the details without losing focus of the interdependent nature of the problem. The thesis further finds that both decision makers’ application of frames and their favored solutions, at the individual level, converged toward a collectively shared equilibrium.

The findings suggest an important application to the design of decision making groups in complex environments. Because high levels of complexity are attended with the help of multiple frames, groups in complex environments should include decision makers with varied backgrounds: a central bank’s top decision making body, for instance, should have at least some members who have vast experience in both macroeconomics and financial regulation. So not one macroeconomist and one financial market expert, but individuals with both skill sets!

Opponent: Assistant Professor Derek Harmon, University of Michigan, USA

Custos: Professor Henri Schildt, Aalto University School of Science,Department of Industrial Engineering and Management

Contact details of the doctoral candidate: [email protected]

The public defence will be organised via Zoom. Link to the event

The dissertation is publicly displayed 10 days before the defence in the publication archive Aaltodoc of Aalto University

Electronic thesis

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