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Valuing Others’ Information under Imperfect Expectations

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  • Hagen Lindstädt

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    Abstract

    Sometimes we believe that others receive harmful information. However, Marschak’s value of information framework always assigns non-negative value under expected utility: it starts from the decision maker’s beliefs – and one can never anticipate information’s harmfulness for oneself. The impact of decision makers’ capabilities to process information and of their expectations remains hidden behind the individual and subjective perspective Marschak’s framework assumes. By introducing a second decision maker as a point of reference, this paper introduces a way for evaluating others’ information from a cross-individual, imperfect expectations perspective for agents maximising expected utility. We define the cross-value of information that can become negative – then the information is “harmfulâ€\x9D from a cross-individual perspective – and we define (mutual) cost of limited information processing capabilities and imperfect expectations as an opportunity cost from this same point of reference. The simple relationship between these two expected utility-based concepts and Marschak’s framework is shown, and we discuss evaluating short-term reactions of stock market prices to new information as an important domain of valuing others’ information. Copyright Springer Science+Business Media, LLC 2007

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    Bibliographic Info

    Article provided by Springer in its journal Theory and Decision.

    Volume (Year): 62 (2007)
    Issue (Month): 4 (May)
    Pages: 335-353

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    Handle: RePEc:kap:theord:v:62:y:2007:i:4:p:335-353

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    Web page: http://www.springerlink.com/link.asp?id=100341

    Related research

    Keywords: value of information; decision under risk; imperfect expectations; cross-value of information; harmful information; stock market prices; D80; D82; D83;

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    1. Lipman, Barton L, 1991. "How to Decide How to Decide How to. . . : Modeling Limited Rationality," Econometrica, Econometric Society, vol. 59(4), pages 1105-25, July.
    2. Grant, S. & Polak, B. & Kajii, A., 1996. "Preference for Information," Papers 298, Australian National University - Department of Economics.
    3. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    4. Hagen LINDSTÄDT, 2001. "More nonconcavities in information processing functions," Theory and Decision, Springer, vol. 51(2), pages 351-365, December.
    5. Jacob Marschak, 1959. "Efficient and Viable Organizational Forms," Cowles Foundation Discussion Papers 65, Cowles Foundation for Research in Economics, Yale University.
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