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Speed and quality of collective decision making: Imperfect information processing

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  • Schulte, Elisabeth
  • Peter Gruner, Hans

Abstract

A group of P identical managers has to make a choice between N alternatives. They benefit from reaching the decision quickly. In order to learn which is the best option, the alternatives have to be compared. A manager is able to identify the better one of two alternatives only with a certain probability. This Paper compares three different hierarchy designs with respect to decision quality: two strictly balanced hierarchies and the fastest hierarchy, which is the skip-level reporting tree proposed by Radner (1993). The latter hierarchy design is found to outperform the two others not only in terms of speed and cost but also in terms of decision quality.
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Suggested Citation

  • Schulte, Elisabeth & Peter Gruner, Hans, 2007. "Speed and quality of collective decision making: Imperfect information processing," Journal of Economic Theory, Elsevier, vol. 134(1), pages 138-154, May.
  • Handle: RePEc:eee:jetheo:v:134:y:2007:i:1:p:138-154
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    References listed on IDEAS

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    1. Grüner, Hans Peter & Schulte, Elisabeth, 2004. "Speed and Quality of Collective Decision-Making II: Incentives for Information Provision," CEPR Discussion Papers 4397, C.E.P.R. Discussion Papers.
    2. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    3. Meagher, Kieron J & Orbay, Hakan & Van Zandt, Timothy, 2001. "Hierarchy Size and Environmental Uncertainty," CEPR Discussion Papers 2839, C.E.P.R. Discussion Papers.
    4. Prat, Andrea, 1997. "Hierarchies of Processors with Endogenous Capacity," Journal of Economic Theory, Elsevier, vol. 77(1), pages 214-222, November.
    5. Orbay, Hakan, 2002. "Information Processing Hierarchies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 370-407, August.
    6. Philippe Jehiel, 1999. "Information Aggregation and Communication in Organizations," Management Science, INFORMS, vol. 45(5), pages 659-669, May.
    7. Kieron Meagher & Timothy Van Zandt, 1998. "Managerial costs for one-shot decentralized information processing," Review of Economic Design, Springer;Society for Economic Design, vol. 3(4), pages 329-345.
    8. Timothy Van Zandt, 1998. "The scheduling and organization of periodic associative computation: Efficient networks," Review of Economic Design, Springer;Society for Economic Design, vol. 3(2), pages 93-127.
    9. Hans Peter Grüner & Elisabeth Schulte, 2004. "Speed and Quality of Collective Decision Making: Incentives for," Levine's Bibliography 122247000000000417, UCLA Department of Economics.
    10. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-1146, September.
    11. Timothy Van Zandt, 1997. "The scheduling and organization of periodic associative computation: Essential networks," Review of Economic Design, Springer;Society for Economic Design, vol. 3(1), pages 15-27.
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    Citations

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    Cited by:

    1. Grüner, Hans Peter, 2009. "Information technology: Efficient restructuring and the productivity puzzle," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 916-929, December.
    2. Grüner, Hans Peter, 2007. "Protocol Design and (De-)Centralization," CEPR Discussion Papers 6357, C.E.P.R. Discussion Papers.
    3. Cho, Myeonghwan, 2010. "Efficient structure of organization with heterogeneous workers," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1125-1139, November.
    4. Grüner, Hans Peter & Schulte, Elisabeth, 2010. "Speed and quality of collective decision making: Incentives for information provision," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 734-747, December.
    5. Hans Peter Grüner, 2010. "Speed and Quality of Collective Decision Making: Incentives for Information Provision," Post-Print hal-00911831, HAL.
    6. Hans Peter Grüner & Elisabeth Schulte, 2004. "Speed and Quality of Collective Decision Making: Incentives for," Levine's Bibliography 122247000000000417, UCLA Department of Economics.

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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