Decision-Making in the Capital Budgeting Context – Effects of Type of Decision Aid and Increases in Information Load

Abstract

This paper experimentally investigates how different types of decision aids interact with increases in data load in a structured capital budgeting decision-making task. The experiment employed a 2x2 between-subjects design and was run in a course on management control systems with 136 master’s degree students at a German university. Subjects were tasked with reviewing investment proposals that contained differing amounts of information (low vs. high data load, i.e., irrelevant information cues in addition to those relevant for the decision). The second manipulation referred to the type of decision aid – either a detailed, rules-based capital budgeting guideline with clear cut-off rates, or the advice to employ generally accepted criteria for investment decision-making. The dependent variables investigated were perceived task complexity, decision accuracy, and decision confidence. Increases in data load led to an increase in perceived task complexity. There was only limited evidence for experimental conditions affecting decision accuracy. The group of subjects relying on the capital budgeting manual reported significantly higher decision confidence. Implications for practice on how to provide decision-makers with information for investment decision-making are derived.