Information Cost and Innovation Adoption Policies

A firm's manager must decide whether to adopt an innovation of uncertain profitability or to obtain some information and then decide to adopt or reject the innovation. Obtaining information can involve either waiting to receive some costless information or buying some additional information as well. The optimal policy for this decision problem may not have a reservation property. That is as the probability of success rises from 0 to 1, the optimal policy may be: wait, buy, wait, buy, and adopt. This suggests a complexity in managerial decision-making regarding innovations of uncertain profitability when there are both costless and costly information sources available to the manager.