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Testing negative value of information and ambiguity aversion

Author

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  • Kops, Christopher
  • Pasichnichenko, Illia

Abstract

The standard Subjective Expected Utility model of decision-making implies that information can never have a negative value ex-ante. Many ambiguity theories have since questioned this property. We provide an experimental test of the connection between the value of information and ambiguity attitude. Our results show that the value of information can indeed be negative when new information renders hedging against ambiguity impossible. Moreover, the value of information is correlated with ambiguity aversion. This confirms the predictions from ambiguity theories and may have implications for decision-making in uncertain and dynamic environments. Neither complexity avoidance nor information with ambiguous reliability can reproduce the results.

Suggested Citation

  • Kops, Christopher & Pasichnichenko, Illia, 2023. "Testing negative value of information and ambiguity aversion," Journal of Economic Theory, Elsevier, vol. 213(C).
    • Handle: RePEc:eee:jetheo:v:213:y:2023:i:c:s0022053123001266
    DOI: 10.1016/j.jet.2023.105730
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    Keywords

    Value of information; Information aversion; Ambiguity aversion; Ellsberg urn; Dynamic consistency; Complexity avoidance;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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