Managers' variance investigation decisions: An experimental examination ofprobabilistic and outcome ambiguity

Information ambiguity is prevalent in organizations and may influence manag ement decisions. This study examines, given imprecise probabilities or outc omes, how managers decide which department's performance to investigate fur ther when they are provided with performance benchmarks expressed in numeri cal intervals. Seventy-nine MBA students participated in two experiments in volving investigation decisions. We presented participants with interval be nchmarks of a firm's expenses. Being below or above the benchmark should ha ve been seen as equally negative. We found that, when facing outcome ambigu ity, our participants consistently preferred to investigate further those d epartments whose performance was described as having an ambiguous outcome ( when the outcome's range was centered either below or above the interval be nchmark). However, when facing probabilistic ambiguity, there were two pred ominant choice patterns: consistently choosing to investigate the departmen t whose performance is described with an ambiguous probability, or consiste ntly choosing to investigate the department with unambiguous performance. T o gain further insight, we conducted a follow-up study collecting written p rotocols of participants' reasons for making choices involving ambiguous pe rformance information. The results show that our participants displayed sim ilar decision-making processes when facing outcome ambiguity and probabilis tic ambiguity. Copyright (C) 2001 John Wiley & Sons, Ltd.