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

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Author Info

  • Joanna Ho

    ()

  • L. Keller

    ()

  • Pamela Keltyka

    ()

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    Abstract

    Information ambiguity is prevalent in organizations and may influence management decisions. This study draws upon research on information bias and ambiguity research to empirically test how information ambiguity and non-financial factors (e.g., interpersonal information) affect managers’ capital budgeting decisions when in good vs. bad times. Ninety-two managers completed two experiments. In Experiment One, the information was presented sequentially. Our results show that without the presence of non-financial factors, managers tend to maximize the firm value. After receiving non-financial factors, a significant number of managers switched to the self-serving option in good times (the gain condition) but stayed with firm-value maximization in bad times (the loss condition). In Experiment Two, the information was presented simultaneously in the presence and absence of ambiguity. We found that in the presence of ambiguity, the information presentation has no impact on managers’ self-serving bias in good times or their firm-value maximization tendency in bad times. Interestingly, we also observed managers’ use of interpersonal information even in the absence of ambiguity. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s11166-005-3553-8
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 31 (2005)
    Issue (Month): 2 (September)
    Pages: 163-186

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    Handle: RePEc:kap:jrisku:v:31:y:2005:i:2:p:163-186

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    Web page: http://www.springerlink.com/link.asp?id=100299

    Related research

    Keywords: information ambiguity; firm-value maximization; self-serving bias; presentation mode;

    References

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    1. J. Edward Russo & Margaret G. Meloy & T. Jeffrey Wilks, 2000. "Predecisional Distortion of Information by Auditors and Salespersons," Management Science, INFORMS, vol. 46(1), pages 13-27, January.
    2. Kachelmeier, Steven J & Shehata, Mohamed, 1994. "Examining Risk Preferences under High Monetary Incentives: Reply," American Economic Review, American Economic Association, vol. 84(4), pages 1105-06, September.
    3. Ho, Joanna L Y & Keller, L Robin & Keltyka, Pamela, 2002. " Effects of Outcome and Probabilistic Ambiguity on Managerial Choices," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 47-74, January.
    4. Hogarth, Robin M & Kunreuther, Howard, 1989. " Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
    5. Curley, Shawn P. & Yates, J. Frank, 1985. "The center and range of the probability interval as factors affecting ambiguity preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 36(2), pages 273-287, October.
    6. Hsee, Christopher K., 1995. "Elastic Justification: How Tempting but Task-Irrelevant Factors Influence Decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 62(3), pages 330-337, June.
    7. Viscusi, W Kip & Magat, Wesley A, 1992. " Bayesian Decisions with Ambiguous Belief Aversion," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 371-87, October.
    8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    9. Dan J. Laughhunn & John W. Payne & Roy Crum, 1980. "Managerial Risk Preferences for Below-Target Returns," Management Science, INFORMS, vol. 26(12), pages 1238-1249, December.
    10. W. Viscusi & Harrell Chesson, 1999. "Hopes and Fears: the Conflicting Effects of Risk Ambiguity," Theory and Decision, Springer, vol. 47(2), pages 157-184, October.
    11. Kunreuther, Howard & Meszaros, Jacqueline & Hogarth, Robin M. & Spranca, Mark, 1995. "Ambiguity and underwriter decision processes," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 337-352, May.
    12. Hsee, Christopher K., 1996. "Elastic Justification: How Unjustifiable Factors Influence Judgments," Organizational Behavior and Human Decision Processes, Elsevier, vol. 66(1), pages 122-129, April.
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    Cited by:
    1. Anwar, Sajid & Zheng, Mingli, 2012. "Competitive insurance market in the presence of ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 79-84.

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