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Hierarchical reporting, aggregation, and information cascades

Author

Listed:
  • Anil Arya

    (Ohio State University, USA)

  • Jonathan Glover

    (Carnegie Mellon University, USA)

  • Brian Mittendorf

    (Yale School of Management, USA)

Abstract

Aggregation is commonly associated with loss of information. In contrast, this paper shows that aggregation can actually enhance information down-the-road by deterring information cascades. In particular, when hierarchical tiers forward only aggregate recommendations rather than nitty-gritty details, it increases the uncertainty faced by subsequent tiers. This makes individuals at higher levels more willing to rely on and convey their own views rather than simply rubber stamping suggestions from lower levels. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Anil Arya & Jonathan Glover & Brian Mittendorf, 2006. "Hierarchical reporting, aggregation, and information cascades," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 355-362.
    • Handle: RePEc:wly:mgtdec:v:27:y:2006:i:5:p:355-362
    DOI: 10.1002/mde.1267
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    References listed on IDEAS

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    1. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66, March.
    2. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    3. Patrick Bolton & Mathias Dewatripont, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 809-839.
    4. Demski, Js & Sappington, Dem, 1989. "Hierarchical Structure And Responsibility Accounting," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 27(1), pages 40-58.
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    Cited by:

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    2. Paul Legerer & Thomas Pfeiffer & Georg Schneider & Joachim Wagner, 2009. "Organizational Structure and Managerial Decisions," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 16(2), pages 147-159.
    3. Gerald A. Feltham & Christian Hofmann, 2012. "Information suppression in multi-agent contracting," Review of Accounting Studies, Springer, vol. 17(2), pages 254-278, June.
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    5. Randall Morck, 2008. "Behavioral finance in corporate governance: economics and ethics of the devil’s advocate," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(2), pages 179-200, May.
    6. Elchanan Mossel & Manuel Mueller‐Frank & Allan Sly & Omer Tamuz, 2020. "Social Learning Equilibria," Econometrica, Econometric Society, vol. 88(3), pages 1235-1267, May.

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