Bounded Rationality in Digital Culture: Yahoo’s Taxonomy

This study examines, through a case analysis conducted within a theoretical framework, how a leading organisation that fails to abandon its existing orientations in the face of transformations grounded in relationality and algorithmic reproducibility in the digital ecosystem is drawn into an entropic process. With its taxonomy-centred corporate orientation, Yahoo rose to a leading position in the digital ecosystem, but for the same reason it lost this position. The study’s theoretical framework is built on bounded rationality and the behavioural theory of the firm, together with exploration–exploitation balance and imperfect environmental matching, which are closely associated with this tradition. This framework explains the reasons why, when the organisational learning capacity cannot read environmental transformation holistically, the organisation cannot make a systemic transition to a dynamic equilibrium. Accordingly, Yahoo is examined as a distinctive case. The method rests on qualitative and intrinsic single-case analysis and aims to produce analytical insights that can be tested/transferred across different contexts rather than to make statistical generalisations. Instead of Yahoo’s corporate sources, the analysis relies on Gil Press’s (2016) published Forbes article, which draws on multiple references and situates Yahoo within its historical context and environmental dynamics; thus, the case is evaluated from an external perspective, avoiding one-sided corporate narratives. The findings show that due to bounded rationality, the priority of routines (in this case, taxonomy-based information orders) shifts the exploration–exploitation balance in favour of exploitation, which in turn leads to an increasingly imperfect match with the environment and, ultimately, to entropic dissolution. In conclusion, in relation to organisational sustainability, the establishment of an adaptive dynamic equilibrium requires designing organisational rationality to treat the environment as a domain to be explored, together with its risks.