The Costs of Ambiguity in Strategic Management Contexts

Abstract

We contribute to the study of ambiguity by analyzing it how it can be handled in a rational, objective manner across the main strategic decision-making contexts that organizations face. Differentiating from previous managerial studies, we conduct the analysis apart from behavioral concerns, and illustrated by a robust-yet-simple decision problem. Significantly, the analysis sets a clear benchmark to use when assessing the impact of an ambiguity level of information against cases where more precise information is available. We identify the many costs of ambiguity, including direct absolute and relative maximums and indirect possibilities. We discuss the strategic managerial implications.