As an interest in the environmental and social issues of various stakeholders, such as investors, consumers, NGOs has risen, many companies are practicing CSR in recent years. However, paradoxical relations which make difficult to do economic activities and environmental and social activities simultaneously occur in the companies when they are practicing CSR management because they put the economic activities before the environmental and social activities. In organization theory and management accounting research, tensions between the factors which have paradoxical relations are noticed as dynamics of organization change and organization development, and it has argued that effectively and efficiently managing the tensions is important, whereas the studies about the paradoxical relations or the tensions from that are still little in the research related to CSR management. Based on Smith and Lewis’ (2011) dynamic equilibrium model and Simons’ (1995) lever of control, therefore this paper aims to clarify what tensions occur and how to manage the tensions when the companies are practicing CSR management.

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Prospect Theory (PT), as proposed by Kahneman and Tversky (Econometrica, 47(2), 263-292, 1979), is employed to study reference-point dependent preferences in order to describe real human behavior in decisions under risk, where typically observed patterns of choice over given lotteries violate the assumption of maximizing expected utility, for example in Allais’ paradox. This theory assumes a probability weighting function (typically inverse S-shaped) and a value function (typically concave above and convex below the reference point) for at most two possible outcomes. It also assumes a single reference point as the monetary value for each lottery. Cumulative Prospect Theory (CPT) (Tversky and Kahneman, Journal of Risk and Uncertainty, 5(4), 297-323, 1992) and Third Generation Prospect Theory (PT3) (Schmidt, Starmer, and Sugden, Journal of Risk and Uncertainty, 36(3), 203-223, 2008) have been proposed as advanced versions of Prospect Theory. Both advanced theories generalize PT for finite outcomes by using rank-dependent transformation (i.e., the Choquet integral). However, PT and CPT do not explicitly explain how to specify the reference point for each choice problem of a decision maker and the descriptive power of CPT is severely restricted due to its satisfying stochastic dominance. PT3 allows stochastic reference points in order to predict the phenomenon of preference reversals, which the original PT and CPT cannot predict. In PT3, the problem of reference point selection is partially solved by assuming the lottery that is not chosen forms the reference point for each state satisfying a state-dependent version of stochastic dominance. However, this paper presents a computer simulation of CPT, which can predict both types of problems: a common ratio effect (CRE) and common consequence effect (CCE), which may have very different parameters from those empirically proposed by Tversky and Kahneman. It also shows that the prediction of CPT (and PT3) never qualitatively improves in the specified problem considered in this paper, even if shifts in the reference point and its stochastic indetermination are explicitly incorporated.

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