Working Paper: CEPR ID: DP4179
Authors: Elisabeth Schulte; Hans Peter Grüner
Abstract: 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.
Keywords: bounded rationality; hierarchies; information processing
JEL Codes: D23; D70; D83; L22; P51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hierarchy design (M54) | decision quality (L15) |
| reduced tree hierarchy (Y10) | decision quality (L15) |
| reduced tree hierarchy (Y10) | speed (C69) |
| increasing hierarchy levels in reduced tree (D73) | decision quality (L15) |
| increasing hierarchy levels in 2t tree (C69) | decision quality (L15) |