Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • May 2017
  • Article
  • Management Science

Experimental Evidence of Pooling Outcomes Under Information Asymmetry

By: William Schmidt and Ryan W. Buell
  • Format:Print
ShareBar

Abstract

Operational decisions under information asymmetry can signal a firm's prospects to less-informed parties, such as investors, customers, competitors, and regulators. Consequently, managers in these settings often face a tradeoff between making an optimal decision and sending a favorable signal. We provide experimental evidence on the choices made by decision makers in such settings. Equilibrium assumptions that are commonly applied to analyze these situations yield the least cost separating outcome as the unique equilibrium. In this equilibrium, the more informed party undertakes a costly signal to resolve the information asymmetry that exists. We provide evidence, however, that participants are much more likely to pursue a pooling outcome when such an outcome is available. This result is important for research and practice because pooling and separating outcomes can yield dramatically different results and have divergent implications. We find evidence that the choice to pool is influenced by changes in the underlying newsvendor model parameters in our setting. In robustness tests, we show that choosing a pooling outcome is especially pronounced among participants who report a high level of understanding of the setting and that participants who pool are rewarded by the less informed party with higher payoffs. Finally, we demonstrate through a reexamination of Lai et al. (2012) and Cachon and Lariviere (2001) how pooling outcomes can substantively extend the implications of other extant signaling game models in the operations management literature.

Keywords

Behavioral Decision Research; Information Asymmetry; Signaling; Decision Choices and Conditions; Alignment

Citation

Schmidt, William, and Ryan W. Buell. "Experimental Evidence of Pooling Outcomes Under Information Asymmetry." Management Science 63, no. 5 (May 2017): 1586–1605.
  • Find it at Harvard

About The Author

Ryan W. Buell

Technology and Operations Management
→More Publications

More from the Authors

    • February 2025
    • Management Science

    Improving Customer Compatibility with Tradeoff Transparency

    By: Ryan W. Buell and MoonSoo Choi
    • 2025
    • Faculty Research

    The Hidden Costs of Working Multiple Jobs: Implications for Spending Behavior and Wellbeing

    By: Paige Tsai and Ryan W. Buell
    • January 2025
    • Faculty Research

    Turning Around Sam's Club

    By: Ryan W. Buell, Zeynep Ton and Sarah Kalloch
More from the Authors
  • Improving Customer Compatibility with Tradeoff Transparency By: Ryan W. Buell and MoonSoo Choi
  • The Hidden Costs of Working Multiple Jobs: Implications for Spending Behavior and Wellbeing By: Paige Tsai and Ryan W. Buell
  • Turning Around Sam's Club By: Ryan W. Buell, Zeynep Ton and Sarah Kalloch
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College.