An accounting system potentially reports information to decision makers. Consequently, to understand the economic role of accounting systems it is useful to understand the economic role of information systems. In our basic economic model of decision making, the decision maker faces uncertainty about the outcomes from his actions. We generally view information as a mechanism for reducing uncertainty, and in single-person decision making the reduction of outcome uncertainty has economic value (which may or may not exceed its costs) if it influences the decision maker’s action choices. Hence, the key characteristic of an information system is how the signals (information) it generates affect the decision maker’s beliefs about outcome relevant events.
KeywordsDecision Maker Decision Rule Likelihood Function Risky Asset Perfect Information
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