An optimal sequential information acquisition model subject to a heuristic assimilation constraint

• Published in: Benchmarking : an international journal Vol. 23; no. 4; pp. 937 - 982
• Main Authors: Di Caprio, Debora, Santos-Arteaga, Francisco J, Tavana, Madjid
• Format: Journal Article
• Language: English
• Published: Bradford Emerald Group Publishing Limited 03.05.2016
• Subjects: Acquisitions & mergers; Algorithms; Assimilation; Benchmarking; Computer simulation; Constraints; Data processing; Decision making; Dynamic programming; Economic models; Expected utility; Expected values; Heuristic; Mathematical analysis; Mathematical models; Money markets; Operations research; Optimization; Organizational performance; Strategy; Utility functions; Decision support systems; Competitive strategy; Utility theory; Rationality; Sequential information acquisition
• ISSN: 1463-5771; 1758-4094
• DOI: 10.1108/BIJ-01-2014-0008

Purpose – The purpose of this paper is to study the optimal sequential information acquisition process of a rational decision maker (DM) when allowed to acquire n pieces of information from a set of bi-dimensional products whose characteristics vary in a continuum set. Design/methodology/approach – The authors incorporate a heuristic mechanism that makes the n-observation scenario faced by a DM tractable. This heuristic allows the DM to assimilate substantial amounts of information and define an acquisition strategy within a coherent analytical framework. Numerical simulations are introduced to illustrate the main results obtained. Findings – The information acquisition behavior modeled in this paper corresponds to that of a perfectly rational DM, i.e. endowed with complete and transitive preferences, whose objective is to choose optimally among the products available subject to a heuristic assimilation constraint. The current paper opens the way for additional research on heuristic information acquisition and choice processes when considered from a satisficing perspective that accounts for cognitive limits in the information processing capacities of DMs. Originality/value – The proposed information acquisition algorithm does not allow for the use of standard dynamic programming techniques. That is, after each observation is gathered, a rational DM must modify his information acquisition strategy and recalculate his or her expected payoffs in terms of the observations already acquired and the information still to be gathered.