IDEAS home Printed from https://ideas.repec.org/a/gam/jgames/v15y2024i3p18-d1399366.html
   My bibliography  Save this article

Information Transmission and Countervailing Biases in Organizations

Author

Listed:
  • Saori Chiba

    (Faculty of Economics, Kyoto Sangyo University, Motoyama, Kamigamo, Kita-ku, Kyoto 603-8555, Japan)

Abstract

A decision maker (DM) must choose between two projects or decide on no project. The expected benefits of these projects are correlated. The DM seeks advice from an agent with private information about the projects’ benefits. However, the agent’s divergent preferences for projects and lack of consideration for the DM’s implementation costs may introduce two types of biases: project bias, favoring the agent’s project, or pandering bias, favoring the project preferred by the DM. Our findings reveal that project correlation leads to these biases countervailing each other, facilitating the transmission of information. The agent typically recommends a project based on private information to dissuade the DM from choosing no project, as this would be detrimental to the agent. Additionally, we explore optimal delegation within organizations. In contrast to the prevailing literature advocating for delegation to biased agents for enhanced information elicitation, our study suggests limited benefits in the context of project correlation.

Suggested Citation

  • Saori Chiba, 2024. "Information Transmission and Countervailing Biases in Organizations," Games, MDPI, vol. 15(3), pages 1-25, May.
    • Handle: RePEc:gam:jgames:v:15:y:2024:i:3:p:18-:d:1399366
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2073-4336/15/3/18/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2073-4336/15/3/18/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, vol. 70(4), pages 1379-1401, July.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Heikki Rantakari, 2012. "Employee Initiative and Managerial Control," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 171-211, August.
    4. Yeon-Koo Che & Wouter Dessein & Navin Kartik, 2013. "Pandering to Persuade," American Economic Review, American Economic Association, vol. 103(1), pages 47-79, February.
    5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    6. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.
    7. Augustin Landier & David Sraer & David Thesmar, 2009. "Optimal Dissent in Organizations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 761-794.
    8. Adam Brandenburger & Ben Polak, 1996. "When Managers Cover Their Posteriors: Making the Decisions the Market Wants to See," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 523-541, Autumn.
    9. Steven A. Matthews, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 347-369.
    10. Chiba, Saori & Leong, Kaiwen, 2015. "An example of conflicts of interest as pandering disincentives," Economics Letters, Elsevier, vol. 131(C), pages 20-23.
    11. Martin, Elizabeth M, 1997. "An Informational Theory of the Legislative Veto," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 13(2), pages 319-343, October.
    12. Shimizu, Takashi, 2013. "Cheap talk with an exit option: The case of discrete action space," Economics Letters, Elsevier, vol. 120(3), pages 397-400.
    13. Takashi Shimizu, 2017. "Cheap talk with an exit option: a model of exit and voice," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(4), pages 1071-1088, November.
    14. Wouter Dessein, 2002. "Authority and Communication in Organizations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 811-838.
    15. Gilat Levy & Ronny Razin, 2007. "On the Limits of Communication in Multidimensional Cheap Talk: A Comment," Econometrica, Econometric Society, vol. 75(3), pages 885-893, May.
    16. Gilligan, Thomas W & Krehbiel, Keith, 1987. "Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(2), pages 287-335, Fall.
    17. Krishna, Vijay, 2001. "Asymmetric Information and Legislative Rules: Some Amendments," American Political Science Review, Cambridge University Press, vol. 95(2), pages 435-452, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saori CHIBA & Kaiwen LEONG, 2018. "Information Aggregation and Countervailing Biases in Organizations," Discussion papers e-18-007, Graduate School of Economics , Kyoto University.
    2. Takashi Shimizu, 2017. "Cheap talk with an exit option: a model of exit and voice," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(4), pages 1071-1088, November.
    3. Saori Chiba & Kaiwen Leong, 2013. "Managerial Economics of Cheap Talk," Working Papers 24, Department of Management, Università Ca' Foscari Venezia.
    4. Saori Chiba & Kaiwen Leong, 2023. "Countervailing Conflicts of Interest in Delegation Games," Games, MDPI, vol. 14(6), pages 1-20, November.
    5. Yeon-Koo Che & Wouter Dessein & Navin Kartik, 2013. "Pandering to Persuade," American Economic Review, American Economic Association, vol. 103(1), pages 47-79, February.
    6. Migrow, Dimitri, 2021. "Designing communication hierarchies," Journal of Economic Theory, Elsevier, vol. 198(C).
    7. Alp Atakan & Levent Kockesen & Elif Kubilay, 2017. "Optimal Delegation of Sequential Decisions: The Role of Communication and Reputation," Koç University-TUSIAD Economic Research Forum Working Papers 1701, Koc University-TUSIAD Economic Research Forum.
    8. Saori Chiba & Kaiwen Leong & Kaiwen Leong, 2013. "Cheap Talk with Outside Options," Working Papers 16, Department of Management, Università Ca' Foscari Venezia.
    9. Inga Deimen & Dezső Szalay, 2019. "Delegated Expertise, Authority, and Communication," American Economic Review, American Economic Association, vol. 109(4), pages 1349-1374, April.
    10. Lim, Wooyoung, 2014. "Communication in bargaining over decision rights," Games and Economic Behavior, Elsevier, vol. 85(C), pages 159-179.
    11. Daniel Habermacher, 2022. "Authority and Specialization under Informational Interdependence," Working Papers 142, Red Nacional de Investigadores en Economía (RedNIE).
    12. Szalay, Dezső & Deimen, Inga, 2020. "Authority in a theory of the firm," CEPR Discussion Papers 15026, C.E.P.R. Discussion Papers.
    13. Shapiro, Jesse M., 2016. "Special interests and the media: Theory and an application to climate change," Journal of Public Economics, Elsevier, vol. 144(C), pages 91-108.
    14. Hongbin Cai, 2009. "Costly participation and heterogeneous preferences in informational committees," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 173-189, March.
    15. Krahmer, Daniel, 2006. "Message-contingent delegation," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 490-506, August.
    16. Schmidbauer, Eric, 2019. "Budget selection when agents compete," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 255-268.
    17. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization?," American Economic Review, American Economic Association, vol. 98(1), pages 145-179, March.
    18. Jaehoon Kim & Lawrence S. Rothenberg, 2008. "Foundations of Legislative Organization and Committee Influence," Journal of Theoretical Politics, , vol. 20(3), pages 339-374, July.
    19. Murali Agastya & Parimal Kanti Bag & Indranil Chakraborty, 2014. "Communication and authority with a partially informed expert," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 176-197, March.
    20. Mylovanov, Tymofiy, 2008. "Veto-based delegation," Journal of Economic Theory, Elsevier, vol. 138(1), pages 297-307, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jgames:v:15:y:2024:i:3:p:18-:d:1399366. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.