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Components of Portfolio Value of Information

Author

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  • Kun Zan

    (Graduate Program in Operations Research and Industrial Engineering, The University of Texas at Austin, Austin, Texas 78712)

  • J. Eric Bickel

    (Graduate Program in Operations Research and Industrial Engineering, The University of Texas at Austin, Austin, Texas 78712)

Abstract

Decision analysis is often employed in portfolio management. The portfolio management process consists primarily of valuation (including uncertainty quantification or risk assessment) and prioritization/selection, which are based on the results of valuation. In this paper, we quantify the relative value of these components using a value of information (VOI) framework. Specifically, we quantify the VOI that stems from the ability to better prioritize projects and the VOI that comes from the ability to exclude projects. We identify conditions under which prioritization is the primary value driver in portfolio settings.

Suggested Citation

  • Kun Zan & J. Eric Bickel, 2013. "Components of Portfolio Value of Information," Decision Analysis, INFORMS, vol. 10(2), pages 171-185, June.
    • Handle: RePEc:inm:ordeca:v:10:y:2013:i:2:p:171-185
    DOI: 10.1287/deca.2013.0267
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    File URL: http://dx.doi.org/10.1287/deca.2013.0267
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    References listed on IDEAS

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    1. J. Eric Bickel, 2006. "Some Determinants of Corporate Risk Aversion," Decision Analysis, INFORMS, vol. 3(4), pages 233-251, December.
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    4. Mazen A. Skaf, 1999. "Portfolio Management in an Upstream Oil and Gas Organization," Interfaces, INFORMS, vol. 29(6), pages 84-104, December.
    5. 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.
    6. Jeffrey Keisler, 2004. "Value of Information in Portfolio Decision Analysis," Decision Analysis, INFORMS, vol. 1(3), pages 177-189, September.
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    Cited by:

    1. Gary J. Summers, 2021. "Friction and Decision Rules in Portfolio Decision Analysis," Decision Analysis, INFORMS, vol. 18(2), pages 101-120, June.
    2. 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.
    3. Rakesh K. Sarin, 2013. "From the Editor ---Median Aggregation, Scoring Rules, Expert Forecasts, Choices with Binary Attributes, Portfolio with Dependent Projects, and Information Security," Decision Analysis, INFORMS, vol. 10(4), pages 277-278, December.
    4. 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.
    5. Rakesh K. Sarin & L. Robin Keller, 2013. "From the Editors ---Group Decisions, Preference Elicitation, Experienced Utility, Survival Probabilities, and Portfolio Value of Information," Decision Analysis, INFORMS, vol. 10(2), pages 99-102, June.

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