Debora Di Caprio, Francisco J. Santos-Arteaga and Madjid Tavana
The purpose of this paper is to study the optimal sequential information acquisition process of a rational decision maker (DM) when allowed to acquire n pieces of information from…
Abstract
Purpose
The purpose of this paper is to study the optimal sequential information acquisition process of a rational decision maker (DM) when allowed to acquire n pieces of information from a set of bi-dimensional products whose characteristics vary in a continuum set.
Design/methodology/approach
The authors incorporate a heuristic mechanism that makes the n-observation scenario faced by a DM tractable. This heuristic allows the DM to assimilate substantial amounts of information and define an acquisition strategy within a coherent analytical framework. Numerical simulations are introduced to illustrate the main results obtained.
Findings
The information acquisition behavior modeled in this paper corresponds to that of a perfectly rational DM, i.e. endowed with complete and transitive preferences, whose objective is to choose optimally among the products available subject to a heuristic assimilation constraint. The current paper opens the way for additional research on heuristic information acquisition and choice processes when considered from a satisficing perspective that accounts for cognitive limits in the information processing capacities of DMs.
Originality/value
The proposed information acquisition algorithm does not allow for the use of standard dynamic programming techniques. That is, after each observation is gathered, a rational DM must modify his information acquisition strategy and recalculate his or her expected payoffs in terms of the observations already acquired and the information still to be gathered.
Details
Keywords
Madjid Tavana, Debora Di Caprio and Francisco J. Santos-Arteaga
The current paper aims to present a formal model illustrating how payoff imbalances among the members of a team of decision makers (DMs) who must undertake a project condition the…
Abstract
Purpose
The current paper aims to present a formal model illustrating how payoff imbalances among the members of a team of decision makers (DMs) who must undertake a project condition the final outcome obtained. This result builds on the fact that payoffs imbalances would lead to different performance levels among the employees and managers who compose a team. The analysis is applied to a strategic environment, where a project requiring coordination among the DMs within the team must be developed.
Design/methodology/approach
The intuition behind the strategic framework on which the results are based is twofold. The authors build on the literature on social comparisons and assume that employees and managers acquire information on the payoffs received by other members of the team while being affected by the resulting comparisons, and they follow the economic literature on firm boundaries determined via incomplete contracts. In this case, employees and managers may underperform if they feel aggrieved by the outcome of the contract giving place to deadweight losses when developing the project.
Findings
The authors illustrate how a team-based performance reward structure may lead to a coordinated equilibrium even when team managers and employees receive different payoffs and exhibit shading incentives based on the payoff differentials between them. The authors will also illustrate how identical shading intensities by both groups of DMs imply that shading by the managers imposes a lower cost on the profit structure of the firm because it leads to a lower decrease in the cooperation incentives of the other members of the team. Finally, the authors show how differences in shading intensity between both types of DMs trigger a strategic defect mechanism within the team that determines the outcome of the project.
Originality/value
The novel environment of team cooperation and defection through shading introduced in this paper is designed to deal with the strategic decisions taken by DMs when undertaking a project within a group. In particular, the intensity of shading applied by the DMs will be endogenously determined by the relative payoffs received, which allows to account for different scenarios, where relative payoff differentials among DMs determine the outcome of the project.
Details
Keywords
Zahra Banakar, Madjid Tavana, Brian Huff and Debora Di Caprio
The purpose of this paper is to provide a theoretical framework for predicting the next period financial behavior of bank mergers within a statistical-oriented setting.
Abstract
Purpose
The purpose of this paper is to provide a theoretical framework for predicting the next period financial behavior of bank mergers within a statistical-oriented setting.
Design/methodology/approach
Bank mergers are modeled combining a discrete variant of the Smoluchowski coagulation equation with a reverse engineering method. This new approach allows to compute the correct merging probability values via the construction and solution of a multi-variable matrix equation. The model is tested on real financial data relative to US banks collected from the National Information Centre.
Findings
Bank size distributions predicted by the proposed method are much more adherent to real data than those derived from the estimation method. The proposed method provides a valid alternative to estimation approaches while overcoming some of their typical drawbacks.
Research limitations/implications
Bank mergers are interpreted as stochastic processes focusing on two main parameters, that is, number of banks and asset size. Future research could expand the model analyzing the micro-dynamic taking place behind bank mergers. Furthermore, bank demerging and partial bank merging could be considered in order to complete and strengthen the proposed approach.
Practical implications
The implementation of the proposed method assists managers in making informed decisions regarding future merging actions and marketing strategies so as to maximize the benefits of merging actions while reducing the associated potential risks from both a financial and marketing viewpoint.
Originality/value
To the best of the authors’ knowledge, this is the first study where bank merging is analyzed using a dynamic stochastic model and the merging probabilities are determined by a multi-variable matrix equation in place of an estimation procedure.