Locally Rational Decision Making: The Distracting Effect of Information on Managerial Performance

Rashi Glazer, Joel H. Steckel and Russell S. Winer
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Rashi Glazer: Walter A. Haas School of Business, University of California, Berkeley, California 94720
Joel H. Steckel: Stern School of Business, New York University, New York, New York 10003
Russell S. Winer: Walter A. Haas School of Business, University of California, Berkeley, California 94720

Management Science, 1992, vol. 38, issue 2, 212-226

Abstract: This paper describes a phenomenon called "locally rational" decision-making, in which the mere presence of information may have dysfunctional consequences even if decision makers do not process the information incorrectly. Using the results from an experiment conducted with a strategic market simulation game, we find that the accessibility of information results in a disposition to focus on those components of decision-making most clearly addressed by the information. If these are not the components most closely tied to success, overall performance may in fact suffer. The decision-making process is thus "locally rational" since it may be optimal with respect to specific components of a larger plan, but globally suboptimal with regard to ultimate outcomes and for the organization as a whole. We describe the implications of the phenomenon for the use of market-related data in managerial decision-making.

Keywords: decision making; rationality; strategy; information; performance; marketing simulation (search for similar items in EconPapers)
Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:38:y:1992:i:2:p:212-226

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