IDEAS home Printed from https://ideas.repec.org/a/spr/envsyd/v34y2014i1d10.1007_s10669-013-9478-x.html
   My bibliography  Save this article

Buying price of event information in two-action decision problems

Author

Listed:
  • Niyazi Onur Bakır

    (TOBB University of Economics and Technology)

  • Georgia-Ann Klutke

    (Texas A&M University)

Abstract

Being able to determine in advance whether certain events occur or not enables a decision maker to reduce the uncertainty of a two-action lottery, although the exact outcome of the lottery may still not be known with certainty. This paper studies the á priori value of information in such a decision making environment. Of interest to the decision maker is to compare the value of information about different events in advance of gathering the information. Using buying price as value of information, we show that when information about the occurrence of two different events are offered to a risk neutral decision maker, the event with a greater contribution in absolute value to the expected value of the lottery has higher value in terms of its buying price. For risk averse decision makers, a preference condition needs to be imposed on the set difference of two events to obtain a generic conclusion. We provide several examples that demonstrate the usefulness of these results.

Suggested Citation

  • Niyazi Onur Bakır & Georgia-Ann Klutke, 2014. "Buying price of event information in two-action decision problems," Environment Systems and Decisions, Springer, vol. 34(1), pages 38-48, March.
    • Handle: RePEc:spr:envsyd:v:34:y:2014:i:1:d:10.1007_s10669-013-9478-x
    DOI: 10.1007/s10669-013-9478-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10669-013-9478-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10669-013-9478-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. L. P. Fatti & A. Mehrez & M. Pachter, 1987. "Bounds and properties of the expected value of sample information for a project‐selection problem," Naval Research Logistics (NRL), John Wiley & Sons, vol. 34(1), pages 141-150, February.
    2. Samson, D. & Wirth, A. & Rickard, J., 1989. "The value of information from multiple sources of uncertainty in decision analysis," European Journal of Operational Research, Elsevier, vol. 39(3), pages 254-260, April.
    3. BakIr, Niyazi Onur & Klutke, Georgia-Ann, 2011. "Information and preference reversals in lotteries," European Journal of Operational Research, Elsevier, vol. 210(3), pages 752-756, May.
    4. Louis Eeckhoudt & Philippe Godfroid, 2000. "Risk Aversion and the Value of Information," The Journal of Economic Education, Taylor & Francis Journals, vol. 31(4), pages 382-388, December.
    5. Allen C. Miller, 1975. "The Value of Sequential Information," Management Science, INFORMS, vol. 22(1), pages 1-11, September.
    6. Ohlson, Ja, 1975. "Complete Ordering Of Information Alternatives For A Class Of Portfolio-Selection Models," Journal of Accounting Research, Wiley Blackwell, vol. 13(2), pages 267-282.
    7. J. Eric Bickel, 2008. "The Relationship Between Perfect and Imperfect Information in a Two-Action Risk-Sensitive Problem," Decision Analysis, INFORMS, vol. 5(3), pages 116-128, September.
    8. Hazen, Gordon B & Sounderpandian, Jayavel, 1999. "Lottery Acquisition versus Information Acquisition: Prices and Preference Reversals," Journal of Risk and Uncertainty, Springer, vol. 18(2), pages 125-136, August.
    9. Ali E. Abbas & N. Onur Bakır & Georgia-Ann Klutke & Zhengwei Sun, 2013. "Effects of Risk Aversion on the Value of Information in Two-Action Decision Problems," Decision Analysis, INFORMS, vol. 10(3), pages 257-275, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zou, Guang & Faber, Michael Havbro & González, Arturo & Banisoleiman, Kian, 2021. "Computing the value of information from periodic testing in holistic decision making under uncertainty," Reliability Engineering and System Safety, Elsevier, vol. 206(C).
    2. Jeffrey M. Keisler, 2014. "Value of information: facilitating targeted information acquisition in decision processes," Environment Systems and Decisions, Springer, vol. 34(1), pages 1-2, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Niyazi Onur Bakir, 2015. "Monotonicity of the Selling Price of Information with Risk Aversion in Two Action Decision Problems," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 7(2), pages 71-90, June.
    2. Ali E. Abbas & N. Onur Bakır & Georgia-Ann Klutke & Zhengwei Sun, 2013. "Effects of Risk Aversion on the Value of Information in Two-Action Decision Problems," Decision Analysis, INFORMS, vol. 10(3), pages 257-275, September.
    3. Philippe Delquié, 2008. "The Value of Information and Intensity of Preference," Decision Analysis, INFORMS, vol. 5(3), pages 129-139, September.
    4. Peter I. Frazier & Warren B. Powell, 2010. "Paradoxes in Learning and the Marginal Value of Information," Decision Analysis, INFORMS, vol. 7(4), pages 378-403, December.
    5. Vilkkumaa, Eeva & Liesiö, Juuso & Salo, Ahti, 2014. "Optimal strategies for selecting project portfolios using uncertain value estimates," European Journal of Operational Research, Elsevier, vol. 233(3), pages 772-783.
    6. Jeffrey M. Keisler, 2005. "Additivity of Information Value in Two‐Act Linear Loss Decisions with Normal Priors," Risk Analysis, John Wiley & Sons, vol. 25(2), pages 351-359, April.
    7. Debarun Bhattacharjya & Jo Eidsvik & Tapan Mukerji, 2013. "The Value of Information in Portfolio Problems with Dependent Projects," Decision Analysis, INFORMS, vol. 10(4), pages 341-351, December.
    8. Debarun Bhattacharjya & Léa A. Deleris, 2014. "The Value of Information in Some Variations of the Stopping Problem," Decision Analysis, INFORMS, vol. 11(3), pages 189-203, September.
    9. Francisco Santos-Arteaga & Debora Di Caprio & Madjid Tavana, 2014. "A Self-regulating Information Acquisition Algorithm for Preventing Choice Regret in Multi-perspective Decision Making," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 6(3), pages 165-175, June.
    10. Rakesh K. Sarin, 2013. "From the Editor —Optimal Betting, Reducing Unnecessary Mammography in Breast Cancer Diagnosis, Product Line Design, and Value of Information," Decision Analysis, INFORMS, vol. 10(3), pages 187-188, September.
    11. Zou, Guang & Faber, Michael Havbro & González, Arturo & Banisoleiman, Kian, 2021. "Computing the value of information from periodic testing in holistic decision making under uncertainty," Reliability Engineering and System Safety, Elsevier, vol. 206(C).
    12. James E. Smith & Canan Ulu, 2017. "Risk Aversion, Information Acquisition, and Technology Adoption," Operations Research, INFORMS, vol. 65(4), pages 1011-1028, August.
    13. Aharon, David Y. & Qadan, Mahmoud, 2018. "What drives the demand for information in the commodity market?," Resources Policy, Elsevier, vol. 59(C), pages 532-543.
    14. Borgonovo, Emanuele & Hazen, Gordon B. & Jose, Victor Richmond R. & Plischke, Elmar, 2021. "Probabilistic sensitivity measures as information value," European Journal of Operational Research, Elsevier, vol. 289(2), pages 595-610.
    15. Zhengwei Sun & Ali E. Abbas, 2014. "On the sensitivity of the value of information to risk aversion in two-action decision problems," Environment Systems and Decisions, Springer, vol. 34(1), pages 24-37, March.
    16. J. Eric Bickel, 2008. "The Relationship Between Perfect and Imperfect Information in a Two-Action Risk-Sensitive Problem," Decision Analysis, INFORMS, vol. 5(3), pages 116-128, September.
    17. L. Robin Keller & Ali Abbas & Manel Baucells & Vicki M. Bier & David Budescu & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Ahti Salo & George Wu, 2010. "From the Editors..," Decision Analysis, INFORMS, vol. 7(4), pages 327-330, December.
      • L. Robin Keller & Manel Baucells & Kevin F. McCardle & Gregory S. Parnell & Ahti Salo, 2007. "From the Editors..," Decision Analysis, INFORMS, vol. 4(4), pages 173-175, December.
      • L. Robin Keller & Manel Baucells & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Gregory S. Parnell & Ahti Salo, 2008. "From the Editors..," Decision Analysis, INFORMS, vol. 5(4), pages 173-176, December.
      • L. Robin Keller & Manel Baucells & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Gregory S. Parnell & Ahti Salo, 2009. "From the Editors ..," Decision Analysis, INFORMS, vol. 6(4), pages 199-201, December.
    18. Theologos Dergiades & Costas Milas & Theodore Panagiotidis, 2015. "Tweets, Google trends, and sovereign spreads in the GIIPS," Oxford Economic Papers, Oxford University Press, vol. 67(2), pages 406-432.
    19. Davidoff, Thomas & Gerhard, Patrick & Post, Thomas, 2017. "Reverse mortgages: What homeowners (don’t) know and how it matters," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 151-171.
    20. Carl Danner & Paul Schulman, 2019. "Rethinking Risk Assessment for Public Utility Safety Regulation," Risk Analysis, John Wiley & Sons, vol. 39(5), pages 1044-1059, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:envsyd:v:34:y:2014:i:1:d:10.1007_s10669-013-9478-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.