02 Acquisition

Management of Information Systems
Prof. Dr. Christof Weinhardt – Ewa Lux
Institute of Information Systems and Marketing (IISM), Karlsruhe Service Research Institute (KSRI)
KIT – University of the federal state Baden-Württemberg

and national research institute of the Helmholtz-association www.kit.edu
Top-candidates meet top-companies
Exclusive recruiting event with individual interviews
2 Management of Information Systems – Prof. Christof Weinhardt, Ewa Lux Institute of Information Systems and Marketing (IISM)
Information acquisition: surveys on the
internet
Quelle: http://www.n-tv.de/umfragen/
Information acquisition: or not?
Quelle: http://www.handelsblatt.com/technologie/it-tk/it-internet/anonymisierung-steckt-tor-bald-in-jedem-firefox/10801870.html
economy
utilization
technology
law
Acquisition Storing Transformation Evaluation Commercialization
society
Outline of the lecture
Information, Measuring/Observation, Experiments, Forecasting,

Acquisition Simulation, Survey, Interviews
Storing Databases, SQL, Pivoting, Semantics and Ontologies
Transformation Transformation Basics, Filtering, Regression, Cluster Analysis
Evaluation Utility Analysis, AHP, Decision Rules, Information Value, Page Rank
Internet Economics, Digital Goods, Network Effects,

Marketing Standardisation Networks, Pricing, Bundeling
The term „information“
Measurements and observations
Experiments
Forecasting markets
Data, information and knowledge
The term INFORMATION
The term „information“ is becoming more and more important in science. The
frequently used definitions
„Information is purposeful knowledge“ [Wittmann, 1959]
relate to the context in which information is applied.
Problem of the definition: What is „knowledge“?
There is no consistent answer to this question.
In the context of this lecture:
Definition: data
Data = symbolic representation of circumstances
5
1.000.000 €
Englerstreet 14, D-76131 Karlsruhe
…
Definition: information
Information = data linked with a purposeful reference

and/or a meaning.
The number 5 is a prim number.
1.000.000 € is the highest amount of money you can win in a German TV

show!
Germany is located in the center of Europe.
…
In contrast to mere data information can be
phrased as a statement.
Definition: knowledge
Knowledge = The understanding and systematical linking

of existing information in order to deduce new information.
The number 5 can not be divided by 2 in whole numbers.

The lecture lasts 90 mins. Due to that it will be finished at 13.00.
…
An example:
[Allianz Annual Report, 2008]
Abstraction pyramid
The knowledge about the process of
knowledge accumulation and the link of
Degree of abstraction
information.
K
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o
w
I
l
n
e
f
d
o
g
( r
e
M m
a a
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D
a
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13 Management of Information Systems – Prof. Christof Weinhardt, Ewa Lux
a Institute of Information Systems and Marketing (IISM)
Explicit and implicit knowledge [Nonaka & Takeuchi, 1997]
Implicit knowledge is on the one hand the result of „Learning by Doing“ (physical
dimension) but on the other hand the result of internalization of values and ideals in the
specific individuals (mental dimension).
Explicit knowledge develops because of the transformation (externalization) of implicit

knowledge. The externalization is one of the core tasks of information management.
Implicit knowledge Explicit knowledge

(subjective) (objective)
• Knowledge as the result of
(practice)
• Analog knowledge
intellect (mind)
• Sequential knowledge
(here and now)
• Simultaneous knowledge
(back and then)
• Digital knowledge (theory)
experience (body)
• Knowledge as a result of
Experiments
Prediction markets
Information development vs. -acquisition
Information emergence Information acquisition
A passive process of Proactive searching and

information intake of one collecting of information by a
individual. individual.
E.g.: perception of the E.g.: Execution of research

weather of the day time experiments and collection of
data
Information acquisition: An example
Take a picture Storing Ad context / Geocoding
Proceed data and

Collection of data Storing implement them in the
actual geographical context
Quelle: http://maps.google.de/help/maps/streetview/
Primary- and secondary data
Data set
Collection of primary data Use of secondary data
Interview Internal data
Observation External data
[Homburg und Krohmer, 2003]
Primary- and secondary data
Primary data: Secondary data:
New collection of data Existing data

Requires acquisition, processing and Requires acquisition, processing and
utilization of new data material utilization of existing data material
Causes time and cost effort Does not allow a judgment of the data
quality if the way of data acquisition
and analysis is unknown
Differentiation between company
internal - or external data
E.g. consumer interviews E.g. customer statistics

E.g. laboratory experiments E.g. statistics of public institutions
Scientific observation
“… represents a planned, systematic collection, examination and

interpretation of data for a specified research purpose due to visual or
acoustic cognition of an event.”
[Kaya, 2009]
Scientific experiment at CERN
Execute the Storing

Measurement values
experiment in a context
Allocate and evaluate

Acquisition of data Storing
the data
Information:
July 2012,
Higgs-Boson
found?
Siehe http://cms.web.cern.ch/node/1187
Scientific observation
“… represents a planned, systematical collection, examination and

interpretation of data for a specified research purpose due to visual or
acoustic cognition of an event.”
[Kaya, 2009]
Advantages
1. Method is not dependent on the verbal abilities of the test person and his/her
willingness to share information.
2. With hidden observations the influence of an interview vanishes completely.
3. Technical instruments help to achieve objective results.
4. Collection of information, that the test person itself is not aware of.
Dimensions of observation
1) Degree of structure:
standardized vs. Non-standardized observation
2) Transparency of the observation situation:

open vs. hidden observation
3) Degree of participation
participating vs. non-participating observation
Degree of structure
Degree of participation
The characteristics in the different dimensions are not

Transparency discreet, but continuous.
[Neibecker, 1995]
Automatically text scanning
Google estimates that worldwide
around 130 mio. books exist
According to Google in October 2010
more than 15 mio. of them were Google is scanning German books
scanned and digitized
Rate per scanner:
about 1000 pages per hour
Checking scanned texts for correctness
OCR (Optical Character Recognition) algorithms are able to

digitize big parts of the text
Some words can not be identified and have to be added
manually high effort
Checking scanned texts for correctness
Possible solution: post-editing with CAPTCHA (Completely Automated

Public Turing test to tell Computers and Humans Apart):
Extract non-identified word from text (e.g. „morning“)
This word is shown to a user of a random webpage together with

another known word.
To log in to the webpage the user has to fill in the login details and
solve the CAPTCHA.
If the user inserts the known word right the unknown word is assumed
to be correct as well and will be saved!
[Repetitions guarantee correctness. ]
[Ahn et al., 2008]
Experiments
Prediction markets
Eco
… aus der
…from thePresse
press nom
Priz
e 20 y Nob
13 el
Source: http://www.usatoday.com/story/news/world/2013/10/14/3-americans-win-economics-nobel/2978647/,
USAToday, 03.03.2015
… aus der
…from thePresse
press
Source: http://www.nytimes.com/2014/10/14/business/jean-tirole-wins-nobel-prize-in-economics.html,
New York Times, Tuesday, 03.03.2015
Experiments
Problem description
Econometrics is a scientific method based on observations!
But: Observation of field data is often not enough to validate and

falsify theoretical models of economic behavior.
Analyzing sources of irritation:

Characteristic (historical) events often occur only by accident
Even if this events occur they often come along with non-relevant side
events
 The higher the complexity of the validated economic models is, the
higher the consequences of this disruptive effects become.
Econometrics & experimental economic
research
Econometrics
Complex statistical methods
uncontrolled (observed) economic field data
Hard to exclude disruptive factors
 Necessity of an analysis under controlled conditions
Experimental economic research

Systematical analysis of economic theories
Controlled lab conditions
E.g. auctions, negotiations, incentives, …
 The experimental economic research is a complementary method.

Isolation und Variation of influencing factors
[mercedes-fans.de]
Field- vs. laboratory experiments
Field experiment Laboratory experiment
Execution in reality which Execution in an artificial
means in a natural environment environment
Generalization of results is Generalization of results is

possible (high external limited because of artificial
validity) environment (low external
validity)
Control of disruptive factors is
difficult (low internal validity) Influencing factors and
independent variables can be
E.g. Observation of shopping controlled well (high internal
behavior validity)
E.g. testing of new products
Experiment laboratory
controlled laboratory conditions

Dividing walls between participants
Database of participants with around 2000 students
34 structured, profit-related
Management of Information payment
Systems – Prof. Christof Weinhardt, Ewa Lux Institute of Information Systems and Marketing (IISM)
Major advantages
1) Replicability
Independent scientists can reply the results of the experimental study
Experiment guidelines are usually published together with the results
Replicability is inherently impossible in observed studies
The correctness of collected field data is hard to verify.
Collection of field data is costly and often impossible.
Major advantages
2) Control
Possibility to control independent data
e.g. market design, incentive systems
Analysis of alternative economical institutions and theories
Control is impossible in real markets
Only theories about existing economic institutions can be analyzed.
Analysis variables are hard to control in reality, often even impossible (e.g.
„try“ a new mechanism)
Only single equilibria can be tested while in theory more would be possible
Weaknesses
1) Can students reply the decision making behavior of professional

decision makers?
Adequate recruiting of participants (age, field of study, term, …)
Students usually have a steep learning curve time- and learning effects
Students of economic sciences reply that behavior surprisingly good
2) Can simplified laboratory experiments explain complex economical

relationships?
Real-world-scenarios can become very complex
Experiments are not applicable for every problem
Weaknesses
3) If a theory works in a laboratory situation, does the same apply for

reality?
Overestimation of experiment results
4) Technical difficulties when realizing the controlled laboratory

conditions
Decision making situations with open time horizon
Risk-aversion of participants
 The experimental economy research is a complementary

supplement of existing methods and can not replace them.
Paradigms
Controlled economical institutions

„rules“ (enforced by the experimenter)
E.g. specific market regulations in a market experiment
Controlled economical conditions

universal, standardized rules for the execution of economic experiments
Theory of induced appreciation
“Control is the essence of experimental methodology, and in

experimental exchange studies it is important that one is able to state
that, as between two experiments, individual values (e.g. demand or
supply) either do or do not differ in a specified way. Such control can be
achieved by using a reward structure to induce prescribed monetary
value on actions.“ [Smith, 1976]
Vernon Smith
Appropriate use of a revenue medium (e.g. money) to give the
participants an incentive for their decision making behavior
Monotony
Participants should have the incentive to raise their share of the revenue
medium continuously
Monotony is fulfilled by using money as a revenue medium
Causality
The correlation between revenue and the decisions of the participants has to be
understood clearly.
The correlation is the concrete implementation of the economic institution that
should be analyzed.
Dominance
Changes in the individual profit of the participants are mainly induced by the
revenue medium. Other influences can be neglected.
Protection of privacy: participants are often interested in the revenues of other
participants
If this 3 conditions are fulfilled, the experimenter can…
… decide randomly for an exchange rate between usually worthless

objects and the revenue medium, …
… as long as he can explain the correlation (causality)
… and the participants are only motivated by the revenue medium

(monotony)
… but not by other influencing factors (dominance).

The concept of the induced appreciation distinguishes interviews from
economic laboratory experiments.
Pay attention to…
Motivation of participants by payment in cash (monotony)

Biggest amount of payment has to be dependent on the decision
making behavior
Average payment higher than opportunity costs
Participants account should never become negative
Choose participants with low opportunity costs and a steep

learning curve (e.g. students)
Rules of the experiment should be as easy as possible

(Outstanding)
As far as possible the decision making behavior, the payment of

the participants and the goal of the game should be kept in
secret
Try to avoid…
Avoid judgmental terms in the introduction

Use of neutral terms for the role of the participants (dominance)
Realistic decision making scenarios without parallels to the real world
Participants must not be misled or told lies!

Strong methodical difference to experimental psychology.
Avoid disruptive influences

E.g. contact or communication between participants, personal
features, gender- or age difference…
… from research
NeuroEconomics
Interdisciplinary research field between neuro- and economic sciences
Analysis of brain activities during economic

decisions
Use of
Elektroenzephalography (EEG)
Magnetresonancetomography (MRT)
Nearinfraredspectroscopy (NIRS)
Analysis of brain activities during a

comparable exercise gives inferences
about the activation of different brain
regions
… from research
NeuroEconomics
An extension of economical experiments
E.g. recording of physiological parameters while

economic experiments
Measurement of E.g. heart beat rate, skin

conductance level or pulse result in higher
technical requirements regarding the acquisition
of data
Results give indications about e.g. emotional
processing of economic data
Findings can be used in the modeling of market

environments
Earning money easily!
register online: orsee.wiwi.uni-karlsruhe.de

Measuring and observations
Experiments
Forecasting markets
A short story of management
Sequential decision making model
Research
Suche Evaluation
Evaluation Implementation
[Mintzberg et al., 1976; Schwenk, 1984; Csaszar, Eggers, 2013]
20th century 21st century
“Management may be the most “The End of Management:

important innovation of the 20th Corporate bureaucracy is
Century […]” becoming obsolete.”
[Drucker, 1973] [Murray, 2010]
The „genome“ of collective intelligence
[Malone et al, 2010]
Interpretation of stock prices
“Price equals expected discounted payoff…

“…the rest is elaboration, special cases and a closet full of tricks
that make the central equation useful for one or another application.”
[Cochrane, 2001]
The fundamental value
„The fundamental value of an instrument is the value that all

traders would agree upon if they knew all available information
about the instrument and if they could properly analyze this
information.“
[Harris, 2003]
Arbitrage idea
Buy undervalued goods
Sell overvalued goods
Prices will be corrected by buying/ purchasing behavior
Markets communicate (private) information
(Information aggregation and distribution)
Efficient Market Hypothesis (EMH)
„Prices fully reflect fundamental values by incorporating

all relevant information about the stock and/or market at
that time.“
[Fama, 1965]
The fundamental value changes, as soon as new information

reach the market members.
The development of new prices is unpredictable, so the prices

follow a ‚random walk‘
The difference between the present prices and the fundamental

value is noise.
sell
sell
sell
buy
buy
sell
Markets aggregate information
[Figlewski 1979]
[Roll 1984]
[Spencer 2004]
[Berg, Rietz 2002]
Forecasting markets
Prediction markets aggregate the wide spread knowledge of the market

members to evaluate on the likelihood of occurrence of future events.
Every possible event can be pictured as a marketable product.

If the event occurs, the product is paid with 100%, otherwise it will
become worthless.
More complex payment functions e.g. for the prognosis of continuous
distributed values are possible as well.
The prices at prediction markets reflect the likelihood of occurrence of
the events.
Forecasting markets
Example: Who will be the new chancellor?
continuous predictions
Incentive to share knowledge Prediction markets solve
Motivation of participants(Gamification) disadvantages of
Fast reaction on events conventional prediction
methods.
Use of wisdom of the crowd
… from research

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02 Acquisition

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Management of Information Systems

Prof. Dr. Christof Weinhardt – Ewa Lux

KIT – University of the federal state Baden-Württemberg

Acquisition Storing Transformation Evaluation Commercialization

Information, Measuring/Observation, Experiments, Forecasting,

Storing Databases, SQL, Pivoting, Semantics and Ontologies

Transformation Transformation Basics, Filtering, Regression, Cluster Analysis

Internet Economics, Digital Goods, Network Effects,

Measurements and observations

The term INFORMATION

„Information is purposeful knowledge“ [Wittmann, 1959]

relate to the context in which information is applied.

Problem of the definition: What is „knowledge“?

There is no consistent answer to this question.

In the context of this lecture:

In the context of this lecture:

Information = data linked with a purposeful reference

1.000.000 € is the highest amount of money you can win in a German TV

Germany is located in the center of Europe.

In the context of this lecture:

Knowledge = The understanding and systematical linking

The number 5 can not be divided by 2 in whole numbers.

[Allianz Annual Report, 2008]

Explicit and implicit knowledge [Nonaka & Takeuchi, 1997]

Explicit knowledge develops because of the transformation (externalization) of implicit

Implicit knowledge Explicit knowledge

Measurements and observations

Information emergence Information acquisition

A passive process of Proactive searching and

E.g.: perception of the E.g.: Execution of research

Take a picture Storing Ad context / Geocoding

Proceed data and

Collection of primary data Use of secondary data

Interview Internal data

Observation External data

[Homburg und Krohmer, 2003]

Primary data: Secondary data:

New collection of data Existing data

E.g. consumer interviews E.g. customer statistics

“… represents a planned, systematic collection, examination and

Execute the Storing

Allocate and evaluate

“… represents a planned, systematical collection, examination and

2. With hidden observations the influence of an interview vanishes completely.

3. Technical instruments help to achieve objective results.

2) Transparency of the observation situation:

The characteristics in the different dimensions are not

OCR (Optical Character Recognition) algorithms are able to

Possible solution: post-editing with CAPTCHA (Completely Automated

Extract non-identified word from text (e.g. „morning“)

This word is shown to a user of a random webpage together with

[Repetitions guarantee correctness. ]

[Ahn et al., 2008]

Measurements and observations

Econometrics is a scientific method based on observations!

But: Observation of field data is often not enough to validate and

Analyzing sources of irritation:

 Necessity of an analysis under controlled conditions

Experimental economic research

 The experimental economic research is a complementary method.

Generalization of results is Generalization of results is

E.g. testing of new products

controlled laboratory conditions