BUSINESS DECISIONS UNDER GAIN AND LOSS CONDITIONS: THE EFFECT OF AMBIGUITY AND INTERPERSONAL INFORMATION

This dissertation examines managers' business decisions when confronted with ambiguous information in gain and loss conditions. The results are presented as three different papers in chapters 2 through 4. These papers investigate managers' decisions in the capital budgeting and variance analysis investigation contexts.; Chapters 2 and 3 examine the capital budgeting decision. Chapter 2 studies probabilistic and outcome ambiguity and how the type of ambiguity affects the project selection response. Chapter 3 investigates how ambiguity and interpersonal information affect a managers' obligation to maximize shareholders' wealth. The results from chapter 2 indicate that with outcome ambiguity managers are ambiguity seeking in a loss condition and ambiguity averse in a gain condition. With probabilistic ambiguity, this expected switching pattern only occurred when the perceived riskiness of the two projects was relatively small in the loss condition. Chapter 3 found that managers maximize shareholders' wealth when provided with only the return of the projects. However, when interpersonal information was present, managers selected the project that promoted their own self-interest in the gain condition and ignored it in the loss condition.; Chapter 4 evaluates a manager's variance analysis decision using interval benchmarks (i.e., goals expressed as a range of numbers rather than as a single value). Also, in this study the variances were described with probabilistic and outcome ambiguity. When the subjects used outcome ambiguity to analyze their variances, they consistently chose to investigate the departments whose performance was described ambiguously. In the presence of probabilistic ambiguity, there were two predominant choice patterns. The managers either consistently investigated the department whose performance was described with the ambiguous probability or investigated the department with the unambiguous probability.; These three studies collectively show that managers' investment and cost decisions are contextually dependent. Capital budgeting decisions appear to be strongly influenced by gain and loss conditions. Also, the extent to which these capital budgeting decisions are influenced by interpersonal information depends on whether a gain or loss condition is present to the managers. But when cost control became the issue, managers understood the importance of investigating departments that have a wide variability in their expenses.