What Do You Know?: Rational Expectations in Information Technology Adoption and Investment

This study examines the potential applications of the rational expectations hypothesis (REH) and adaptive learning theory in information technology (IT) investment and adoption decision-making. Although REH has been widely used in other areas of microeconomics and macroeconomics, we have not yet seen common use of the related theory in the Information Systems (IS) field. Despite the fact that rationality is commonly assumed in economic analyses, the REH‘s rather strong assumptions make it a unique theory and allow us to offer new perspectives on IS/IT adoption and investment decisionmaking. In this paper, we discuss how REH and adaptive learning can be applied in IS/IT investment and adoption decisionmaking settings. Such settings require managers, as economic agents, to form a set of expectations about the values of various variables related to the business value of IT. We present a number of propositions that characterize this perspective, and discuss some illustrative examples which demonstrate the efficacy of the theoretical perspective that we present to characterize the business value expectations formation process in IT adoption.