LOCALLY RATIONAL DECISION-MAKING - THE DISTRACTING EFFECT OF INFORMATION ON MANAGERIAL PERFORMANCE

This paper describes a phenomenon called "locally rotional" decision-m aking, in which the mere presence of information may have dysfunctiona l consequences even if decision makers do not process the information incorrectly. Using the results from an experiment conducted with a str ategic market simulation game, we find that the accessibility of infor mation results in a disposition to focus on those components of decisi on-making most clearly addressed by the information. If these are not the components most closely tied to success, overall performance may i n fact suffer. The decision-making process is thus "locally rational" since it may be optimal with respect to specific components of a large r plan, but globally suboptimal with regard to ultimate outcomes and f or the organization as a whole. We describe the implications of the ph enomenon for the use of market-related data in managerial decision-mak ing.