Abstract

In this paper, we use an information economics approach for analyzing information systems (IS) that are used by multiple decision makers (DM) for making inter-related decisions in a cooperative environment. A decision setting is considered where there may be a precedence relationship between actions, and where one DM's action may be constrained by others' actions. Moreover, an individual DM may not have full information on other DMs' decision parameters. Several interesting results emerge from the analysis. In a two-stage, cooperative decision setting involving a purchasing and a production function, the interactions between the two decisions, and the impact of the IS shared by the DMs on their overall performance are studied. Using team theory, it is shown that when the first DM does not have full information on certain decision parameters of the second DM, the overall cost may increase with a more accurate IS, even when higher accuracy call be obtained for free. The optimal level of informational detail for the two decision makers is studied in conjunction with restricted action sets. We find that the level of detail that can be effectively utilized by the team is determined only by the action set of the second DM. This result provides a basis for determining the information requirements of the DMs as a function of their context parameters. The issue of updating information for the two DMs is also addressed. Endogenizing updating frequency as a decision variable, we show that higher updating frequency of the shared IS may lead to higher cost (or lower payoff), even when the increase in frequency is obtained at zero cost. The results of the paper have implications for better design of information systems supporting distributed decision making in cooperative environments.

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