An optimal information acquisition model for competitive advantage in complex multiperspective environments

Abstract

The optimal information acquisition process is a major strategic task for sustaining a firm’s competitive advantage. We define the optimal sequential information acquisition behavior of a rational decision maker (DM) when allowed to acquire two pieces of information from and observe positive credible signals on a set of multidimensional products. We illustrate how firm reputation affects the continuity of the expected utilities derived from a given search and may generate reversals in the information acquisition incentives of DMs when deciding whether or not to shift their search processes between different signal-induced markets. This study makes a number of important contributions to our understanding of a firm’s information acquisition. First, it provides a formal analysis of the information acquisition process when the characteristics defining a product have a continuous set of variants. Second, it allows for the study of risk-averse DMs, while most of the literature concentrates on risk-neutral DMs. Third, it opens the way for strategic scenarios to be considered when analyzing the information acquisition processes of firms and creates a direct link to the game theoretical literature on strategic reporting. Fourth, it can be easily implemented within multicriteria decision making methods such as the analytic hierarchy process (AHP) to study the information acquisition behavior of DMs when the characteristics of the products are unknown.