Impacts of Organizational Learning and Knowledge Transfer on Investment Decisions under Uncertainty

Investments in innovative technologies face uncertainties and are often made in stages. We develop a multi-period game-theoretical model where the potential of a new technology is uncertain, and players involved can only learn about its true potential over time. Players involved include a decision maker and a project manager (or manager in short). The manager gains knowledge through direct access to the project and updates his beliefs about the potential of the new technology accordingly, while the decision maker learns about the new technology from knowledge transferred from the manager. We show that the manager with misaligned incentives may transfer his knowledge untruthfully and distort the learning process of the decision maker. As a result, the decision maker will discount the manager´s report due to expectations of possible misreporting, leading to inefficient investment decisions. We also propose solutions to this problem.