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The Value of Information In Monotone Decision Problems

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  • Susan Athey
  • Jonathan Levin

Abstract

February 2001 This paper studies decision problems under uncertainty where a decision-maker observes an imperfect signal about the true state of the world. We analyze the information preferences and information demand of such decision-makers, based on properties of their payoff functions. We restrict attention to "monotone decision problems," whereby the posterior beliefs induced by the signal can be ordered so that higher actions are chosen in response to higher signal realizations. Monotone decision problems are frequently encountered in economic modeling. We provide necessary and sufficient conditions for all decision makers with different classes of payoff functions to prefer one information structure to another. We also provide conditions under which two decision-makers in a given class can be ranked in terms of their marginal value for information and hence information demand. Applications and examples are given. Working Papers Index

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 98-24.

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Date of creation: Nov 1998
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Handle: RePEc:mit:worpap:98-24

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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References

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  1. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  2. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Grant, S & Kajii, A & Polak, B, 1997. "Intrinsic Preference for Information," Papers 323, Australian National University - Department of Economics.
  4. Larry G. Epstein & Stephen M. Tanny, 1980. "Increasing Generalized Correlation: A Definition and Some Economic Consequences," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 16-34, February.
  5. Athey, S, 1996. "Comparative Statics under Uncertainty : Single Crossing Properties and Log-Supermodularity," Working papers 96-22, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  7. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January.
  8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  9. Athey, S., 1996. "Characterizing Properties of Stochastic Objective Functions," Working papers 96-1, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Jewitt, Ian, 1986. "A note on comparative statics and stochastic dominance," Journal of Mathematical Economics, Elsevier, vol. 15(3), pages 249-254, June.
  11. Shannon, Chris, 1995. "Weak and Strong Monotone Comparative Statics," Economic Theory, Springer, vol. 5(2), pages 209-27, March.
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