Abstract
This article analyses, with case study illustrations, a two‐stage decision support technique for making informed choices within firms. The technique can assist managers by the use of simple decision‐tree diagrams, assigning values to its branches. The technique is based on the microeconomics of choice orderings, and we demonstrate how appropriate decision trees can be constructed and applied. This technique is illustrated by three case study vignettes based on real actions of UK firms. These show how such decision trees can both aid our understanding of choices made and assist in the practice of choosing financial reporting regimes and techniques.
Highlights
This paper applies the microeconomics of preference orderings and decision trees to view firms' choice behavior through the theoretical and empirical lens of two-stage decision-making (Bhargave et al, 2015; Li et al, 2014; Xie & Lee, 2015)
In our case study illustrations, we investigate how firms make choices over (1) financial reporting regimes like the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Practice in the UK (UK GAAP) and (2) techniques to implement them, like market or cost approaches to valuing intangibles
We find that tied choices are ubiquitous
Summary
This paper applies the microeconomics of preference orderings and decision trees to view firms' choice behavior through the theoretical and empirical lens of two-stage decision-making (Bhargave et al, 2015; Li et al, 2014; Xie & Lee, 2015) It illustrates this modelling approach using a set of three UK case studies, in which the two choice variables are financial reporting regimes and techniques. In our case study illustrations, we investigate how firms make choices over (1) financial reporting regimes like the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Practice in the UK (UK GAAP) and (2) techniques to implement them, like market or cost approaches to valuing intangibles This follows up on the insights of Simon (1959, 1979) by Manage Decis Econ. This follows up on the insights of Simon (1959, 1979) by Manage Decis Econ. 2021;1–19
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