The Value of information and intensity of preference
Author: Delquié, Philippe INSEAD Area: Decision SciencesIn: Decision Analysis, vol. 5, no. 3, September 2008 Language: EnglishDescription: p. 129-139.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: Previous research has documented the lack of clear relationships between the value of information and characteristics of the decision problem. This paper shows that the intensity of the decision makers preference toward the prior choice alternatives can be regarded as the primary determinant of information value. The value of an information source, measured in utility units, is maximal when the decision maker is indifferent vis-à-vis the prior alternatives, and it is lower as the preference for one alternative over the others gets stronger. This holds under quite general conditions, which are made explicit, and for any decision makers utility function, wealth and background risks. The maximum buying price of information follows the same pattern for linear utility and, with a restriction, exponential utility, and this may hold approximately for other types of utility functions. The result provides a general, concise, and intuitive explanation for seemingly ill-behaved variations in the value of information. It indicates that non-monotonic, quasi-concave relationships should generally be expected between value of information and parameters of the decision problem.| Item type | Current location | Call number | Status | Date due | Barcode | Item holds |
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Previous research has documented the lack of clear relationships between the value of information and characteristics of the decision problem. This paper shows that the intensity of the decision makers preference toward the prior choice alternatives can be regarded as the primary determinant of information value. The value of an information source, measured in utility units, is maximal when the decision maker is indifferent vis-à-vis the prior alternatives, and it is lower as the preference for one alternative over the others gets stronger. This holds under quite general conditions, which are made explicit, and for any decision makers utility function, wealth and background risks. The maximum buying price of information follows the same pattern for linear utility and, with a restriction, exponential utility, and this may hold approximately for other types of utility functions. The result provides a general, concise, and intuitive explanation for seemingly ill-behaved variations in the value of information. It indicates that non-monotonic, quasi-concave relationships should generally be expected between value of information and parameters of the decision problem.
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