DP4179 Speed and Quality of Collective Decision-Making, I: Imperfect Information Processing

Author(s): Hans Peter Grüner, Elisabeth Schulte
Publication Date: February 2004
Keyword(s): bounded rationality, hierarchies, information processing
JEL(s): D23, D70, D83, L22, P51
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4179

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.