Physical Sciences and Mathematics Commons^™

Information Technology (It) Investment Decisions Under Asymmetric Information: A Modified Rational Expectation Model, Jinlan Ni, Deepak Khazanchi

Information Systems and Quantitative Analysis Faculty Publications

In this paper, we propose that information technology (IT) managers make investment decisions about new IT initiatives based on a modified rational expectation model. Unlike traditional rational expectation models, we emphasize the relevance of market uncertainty and its impact on the return of new IT investment. This results in information acquisition decisions by managers that can cause information asymmetry. This information asymmetry is endogenous and so the IT manager can become well informed if and only if it is beneficial to do so. We also capture different levels of IT investment across managers by introducing heterogeneity across managers in terms …