On the Design of Information-Processing and Decisionmaking Organizations

An effectiveness measure for comparing alternative organizational structures is derived and then applied to the evaluation of two three-person organizations. The modeling and analysis of the organizations is carried out using an information theoretic framework in which decisionmakers are described by a two-stage model consisting of a situation assessment and a response selection stage. The total rate of internal processing of each decisionmaker is constrained by bounded rationality, while the performance of the organization must satisfy specified goals. The interrelationship between performance and bounded rationality is expressed in a generalized strategy space that forms the basis for the effectiveness analysis.