Knowledge that Transforms

In a previous paper (Management Science, December 1981) Hausch, Ziemba and Rubinstein (HZR) developed a system that demonstrated the existence of a weak market inefficiency in racetrack place and show betting pools. The system appeared to make possible substantial positive profits. To make the system operational, given the limited time available for placing bets, an approximate regression scheme was developed for the Exhibition Park Racetrack in Vancouver for initial betting wealth between $2500 and $7500 and a track take of 17.1%. This paper: (1) extends this scheme to virtually any track and initial wealth level; (2) develops a modified system for multiple horse entries; (3) allows for multiple bets; (4) analyzes the effects of the track take and breakage on profits; (5) presents recent results using this system; and (6) considers the extent of the inefficiency, i.e., how much can be bet before the market becomes efficient?

Recently Kornbluth and Steuer have developed a simplex-based algorithm for finding all weakly-efficient vertices of an augmented feasible region of a multiple objective linear fractional programming problem. As part of this algorithm, they presented a method for detecting certain weakly-efficient vertices called break points. In this note we show that the procedure used by Kornbluth and Steuer in this method for computing the numbers needed to find these break points may sometimes fail. We also propose a fail-safe method for computing these numbers and give some computational results with this method.

The profitability of a new technology is rarely known with certainty at its announcement date. Consequently, prior to making an adoption decision it behooves the firm considering the adoption of this innovation to reduce the level of uncertainty associated with its profitability. The firm accomplishes this by sequentially gathering information, updating its prior estimate of profitability in a Bayesian manner. Quantifying the uncertainty regarding the innovation permits application of dynamic programming techniques: criteria are derived which tell the firm when to stop collecting information and make the adoption decision. It will be shown that it is optimal for the firm to continue to collect information until its estimate of profitability crosses one of two thresholds: upon crossing the upper threshold the firm adopts the technology, whereas the firm rejects the technology if the lower threshold is crossed. The model predicts that even the manager who behaves optimally will occasionally adopt unprofitable technologies and reject profitable ones.

When making decisions, managers like to obtain pertinent information quickly and accurately from the information systems in an organization. But, often, different answers are obtained, depending on how the information request is phrased or from which information system the information is requested. In order to correct this problem, the system analyst and data base administrator have to resolve any conflicts in defining elements, their names and their relationships before computerized information systems are designed. A syntax method, described in this paper, has been developed to handle this process. This method standardizes names and mathematical relationships of elements. These standard data elements become the input to most system analysis methods facilitating the design of computerized information systems.

In a December 1983 article in Management Science, Stephen Goddard studies the problem of ranking contestants in a round-robin tournament. He gives objections to the usual method of ranking contestants by number of victories and proposes both an alternative method for ranking contestants and a criterion for determining the “fairest” ranking. We argue here that his criterion is faulty and, in fact, falls prey to his own objections. We also show that his method, in any event, produces rankings which don't satisfy the criterion. Finally we describe a general class of models of competition which have been proposed to solve this problem and which lead to the usual method of ranking by number of victories.

Decomposable systems, decomposition and 0-1 integer programming techniques are reviewed relative to project selection problems. It is concluded that a heuristic procedure is a suitable way to handle such problems in organizational settings. A hierarchical multiperiod multidimensional model is proposed. Good results are obtained based on an existing heuristic algorithm by Toyoda, by means of a decomposable interactive formulation. Examples and discussions are included that show how the use of this model can improve management decisions. A major advantage of this formulation is its flexibility to handle many different R&D situations, a feature which should increase its usefulness over many other R&D Project Selection Models. The model can be used in a multihierarchy ambience, can use parametric budgeting, and can be used as a control tool. The interactive feature provides the means for improving organizational communications and integrating divergent viewpoints.

In many service systems, customers interact with an agent who directs customers to specific service facilities. Each agent, as a decision maker, seeks to allocate his/her customers to the service centers so as to optimize a measure of performance based on the customers’ expected waiting time and the expected number of customers in service. In this paper, the problem of multiple agents, each optimizing his/her customer allocation decision in a stochastic service system, is analyzed as a noncooperative game. It is shown that an equilibrium point to such a game exists and sufficient conditions for which this equilibrium point is unique are also given. Finally, the relative efficiency of the multi-agent system is examined by comparing the customers’ average waiting time in the multi-agent system to the one-agent case. It is shown that, in general, the multi-agent system is not as efficient as the one-agent one in terms of customer welfare.

This paper is a review and evaluation of a policy argument in a recent issue of Management Science. Mitroff, Mason and Barabba presented a case study of a policy model, built around the problem of undercounting minorities in the U.S. Census, in a Toulmin format. We restructure this model as a Boolean system with both conditional and unconditional statements, preserving both the MMB arguments and the Toulmin format. It is shown that there is an error in the buildup of the MMB model. This error does not change the end result that their model is a contradiction, however it is much earlier to see this fact with the Boolean formulation than with a verbal presentation only. We discuss the potential usefulness of this type of modelling for policy capture, including some of the difficulties of employing the Toulmin format.

This paper examines the relationship between research and development peoples' perceptions of uncertainty in their firm's competitive environment and their patterns of technical communication. Measures of both these attributes of six R&D groups, two in each of three industries, are reported and analyzed here. Technical people who saw the world (competitors, suppliers, customers, technology and regulations) outside their firm as more uncertain also were found to seek greater contact with sources of information outside their firms. The gatekeeper phenomenon was found to be more pronounced, but less formal and less well defined in these firms. Gatekeepers in general were found to perceive a higher level of uncertainty than others in all six firms.

For an arbitrator model different from the one in the referenced paper, final-offer arbitration (FOA) is very effective. This suggests that strategies for conducting successful FOA may be available to arbitrators. In the above quoted paper, Brams and Merrill (Brams, Steven J., Samuel Merrill, III. 1983. Equilibrium strategies for final-offer arbitration: there is no median convergence. Management Sci. 29 (August) 927–941.) quote a statement on final-offer arbitration (FOA): “The theory which underlies final-offer arbitration is quite simple. If the arbitrator or panel was permitted to select only one or the other of the parties' final offers, with no power to make a choice anywhere in between, it was expected that the logic of the procedure would force negotiating parties to continue moving closer together in search of a position that would be most likely to receive neutral sympathy. Ultimately, so the argument went, they would come so close together that they would almost inevitably find their own settlement.” and then refute it as follows: “One purpose of our article is to show that there is little truth to this theory: divergence, rather than convergence, of equilibrium strategies is the norm.”