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Communication and behavior in organizations: An experiment

Author

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  • Piotr Evdokimov
  • Umberto Garfagnini

Abstract

We design a laboratory experiment to study behavior in a multidivisional organization. The organization faces a trade‐off between coordinating its decisions across the divisions and meeting division‐specific needs that are known only to the division managers, who can communicate their private information through cheap talk. While the results show close to optimal communication, we also find systematic deviations from optimal behavior in how the communicated information is used. Specifically, subjects' decisions show worse than predicted adaptation to the needs of the divisions in decentralized organizations and worse than predicted coordination in centralized organizations. We show that the observed deviations disappear when uncertainty about the divisions' local needs is removed and discuss the possible underlying mechanisms.

Suggested Citation

  • Piotr Evdokimov & Umberto Garfagnini, 2019. "Communication and behavior in organizations: An experiment," Quantitative Economics, Econometric Society, vol. 10(2), pages 775-801, May.
    • Handle: RePEc:wly:quante:v:10:y:2019:i:2:p:775-801
    DOI: 10.3982/QE809
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    Cited by:

    1. Konstantinos Georgalos & John Hey, 2020. "Testing for the emergence of spontaneous order," Experimental Economics, Springer;Economic Science Association, vol. 23(3), pages 912-932, September.
    2. Kellner, Christian & Thordal-Le Quement, Mark & Riener, Gerhard, 2020. "Reacting to ambiguous messages: An experimental analysis," DICE Discussion Papers 357, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Jordi Brandts & David J. Cooper, 2018. "Truth Be Told An Experimental Study of Communication and Centralization," Working Papers 1046, Barcelona School of Economics.
    4. Kellner, Christian & Le Quement, Mark T. & Riener, Gerhard, 2022. "Reacting to ambiguous messages: An experimental analysis," Games and Economic Behavior, Elsevier, vol. 136(C), pages 360-378.
    5. Liu, Shuo & Migrow, Dimitri, 2022. "When does centralization undermine adaptation?," Journal of Economic Theory, Elsevier, vol. 205(C).

    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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