Information technology investment and adoption: a rational expectations perspective

This study examines the potential applications of the rational expectations hypothesis (REH) in information technology (IT) investment and adoption decision-making. Although REH has been widely used in other areas of microeconomics and macroeconomics, we have not yet seen common use of the related theory in the information systems (IS) field. In this paper, we introduce REH theory together with some of its applications in non-IS/IT areas. Despite the fact that rationality is commonly assumed in economic analyses, the REH's rather strong assumptions make it a unique theory and allow us to offer new perspectives on IS/IT adoption and investment decision-making. We discuss how the theory can potentially be applied in IS/IT cases by presenting several illustrative examples. We then examine issues in the evaluation of adoption and investments of new and emerging ITs. Based on the theory, we argue that managers that are risk-averse are most likely to wait and adopt or invest in new and emerging technologies later than managers that are risk-takers. We suggest that for the earlier adoption or investments, the conventional method for estimating investment value may not be appropriate. We also suggest research directions with regard to the application of REH in the IS field.