Open AccessCommunication and behavior in organizations: An experiment
Author(s) -
Evdokimov Piotr,
Garfagnini Umberto
Publication year - 2019
Publication title -
quantitative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.062
H-Index - 27
eISSN - 1759-7331
pISSN - 1759-7323
DOI - 10.3982/qe809
Subject(s) - adaptation (eye) , division (mathematics) , private information retrieval , business , microeconomics , knowledge management , marketing , computer science , economics , psychology , mathematics , computer security , arithmetic , neuroscience
We design a laboratory experiment to study behavior in a multidivisional organization. The organization faces a trade‐off between coordinating its decisions across the divisions and meeting division‐specific needs that are known only to the division managers, who can communicate their private information through cheap talk. While the results show close to optimal communication, we also find systematic deviations from optimal behavior in how the communicated information is used. Specifically, subjects' decisions show worse than predicted adaptation to the needs of the divisions in decentralized organizations and worse than predicted coordination in centralized organizations. We show that the observed deviations disappear when uncertainty about the divisions' local needs is removed and discuss the possible underlying mechanisms.