On the Value of the Tail Event Information

This paper analyzes the buying price of the tail event information that is generated by the outcome of a simple event that identifies whether the value of a random prospect exceeds a critical threshold value. Our discussion begins with the analysis of perfect tail event information. We determine how the maximum amount a risk-averse decision maker is willing to pay changes as a function of this threshold value, and we discuss whether quick financial comparisons can be made between these information alternatives. We also provide results on the value of information calculus to measure how the buying price behaves as we increase our information content through acquisition of two or more tail event information alternatives. Our theoretical results indicate the correlation between the buying prices of simpler tail event information alternatives and more complex versions of event information. The focus of the article then shifts to modeling of an additional risk that may be encountered in information acquisition. In particular, we analyze imperfect tail event information and discuss how the accuracy of the information source affects the corresponding buying price. Finally, we demonstrate our findings through examples and provide insights into our results.