Managers' variance investigation decisions: an experimental examination of probabilistic and outcome ambiguity

Abstract

Information ambiguity is prevalent in organizations and may in¯uence management decisions. This study examines, given imprecise probabilities or outcomes, how managers decide which department's performance to investigate further when they are provided with performance benchmarks expressed in numerical intervals. Seventy-nine MBA students participated in two experiments involving investigation decisions. We presented participants with interval benchmarks of a ®rm's expenses. Being below or above the benchmark should have been seen as equally negative. We found that, when facing outcome ambiguity, our participants consistently preferred to investigate further those departments whose performance was described as having an ambiguous outcome (when the outcome's range was centered either below or above the interval benchmark). However, when facing probabilistic ambiguity, there were two predominant choice patterns: consistently choosing to investigate the department whose performance is described with an ambiguous probability, or consistently choosing to investigate the department with unambiguous performance. To gain further insight, we conducted a follow-up study collecting written protocols of participants' reasons for making choices involving ambiguous performance information. The results show that our participants displayed similar decision-making processes when facing outcome ambiguity and probabilistic ambiguity.

Similar processes despite divergent behavior in two commonly used measures of risky decision making

“…Each choice in the IGT, though, has several possible win and loss outcomes, outcomes that must be learned gradually. Outcome ambiguity is known to affect decision making (Ho, Keller, & Keltyka, 2001), and it is plausible that such ambiguity would affect the learning process in decision-making tasks.…”

“What’s it Worth to Me?” Three interpretive studies of the relative roles of task-oriented and reflexive processes in separate versus joint value construction

“…Such an approach was applied by Montgomery (1989) who took actual quotes from protocol statements (taken from research by Lopes, 1987) and matched them against choices made in gain lotteries. Similarly, other research by Browne andPitts (2004), Ho, Keller, andKeltyka (2001), Ranyard and Williamson (2005), and Ranyard et al (2006) used quotes from written or verbal protocols as exemplars to account for study participants' choices, decisions, processes, and strategies in a variety of decision-making settings. Support or non-support was coded on an a priori basis in terms of willingness-to-pay (WTP) in relation to the predictions of the evaluability hypothesis; that is higher (lower) WTP where predicted to be higher (lower), but further classifications based on experiential findings are illustrated with quotes on a more reflective or emergent reason-based analysis (Karlsson, 1989;Ranyard et al, 2006) where a more hermeneutic, thematic or analytic, inductive theorization is appropriate (Allen, 2002;Dittmar & Drury, 2000;Yang, 2000).…”

How Do Information Ambiguity and Timing of Contextual Information Affect Managers’ Goal Congruence in Making Investment Decisions in Good Times vs. Bad Times?

“…Prior studies on outcome ambiguity show that people exhibit ambiguity avoidance in the gain condition (Gonzalez-Vallejo, Bonazzi, and Shapiro, 1996;Ho, Keller, and Keltyka, 2001) and ambiguity seeking in the loss condition (Ho, Keller, and Keltyka, 2001), but these studies did not examine self-interest. For example, Gonzalez-Vallejo, Bonazzi, and Shapiro (1996) reported that in a gain condition their undergraduate students considered the unambiguous option favorably and avoided ambiguous options that might jeopardize them in achieving the target.…”