Dealing with uncertainty within information systems development: Applying prospect theory.

Abstract

Information systems development is complex, involving relationships between distinct groups of people (e.g. users, analysts, designers and system owners), development rituals (e.g. methods and techniques) and dynamic environmental influences. This thesis develops a fuller picture of how uncertainty is addressed in this complex development environment. This is of relevance to the information systems field as many information systems projects involve much uncertainty and the uncertainty is likely to affect the success of these projects.

The main theoretical tool used in this thesis is prospect theory (Kahneman and Tversky 1979, Tversky and Kahneman 1992), which is described as a descriptive model of decision-making under risk. The main characteristics of prospect theory are the 'framing effect', a hypothetical 'S' shaped value function with corresponding weighting function and a two-phase decision process. These have been collaborated with a wealth of empirical studies and are likely to represent some fundamental decision-making behaviour: generally, people are influenced by how a decision situation is represented (framing effect) and, people are risk averse in situations of gains and risk seeking in situations of losses (as described by the value function). However, existing research is inconclusive on the applicability of prospect theory to complex real-life situations. Complex real-life decision environments are likely to involve uncertainty rather than risk and are likely to be conducted in a group context rather than an individual one. This thesis maps the applicability of prospect theory to the complex real-life arena of information systems development.

While mapping the applicability of prospect theory, this thesis develops a model of dealing with uncertainty, consisting of an iterative process, application of meta rules, group involvement and the identification of coping strategies. In addition, the model identifies the main influences on decision-making including the influences that are likely to be dominant. Where individual and framing influences dominate, then prospect theory seems appropriate. Where group and cultural influences dominate, then prospect theory is less appropriate.

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