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Valuing Others’ Information under Imperfect Expectations

  • Hagen Lindstädt

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    Sometimes we believe that others receive harmful information. However, Marschak’s value of information framework always assigns non-negative value under expected utility: it starts from the decision maker’s beliefs – and one can never anticipate information’s harmfulness for oneself. The impact of decision makers’ capabilities to process information and of their expectations remains hidden behind the individual and subjective perspective Marschak’s framework assumes. By introducing a second decision maker as a point of reference, this paper introduces a way for evaluating others’ information from a cross-individual, imperfect expectations perspective for agents maximising expected utility. We define the cross-value of information that can become negative – then the information is “harmfulâ€\x9D from a cross-individual perspective – and we define (mutual) cost of limited information processing capabilities and imperfect expectations as an opportunity cost from this same point of reference. The simple relationship between these two expected utility-based concepts and Marschak’s framework is shown, and we discuss evaluating short-term reactions of stock market prices to new information as an important domain of valuing others’ information. Copyright Springer Science+Business Media, LLC 2007

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    File URL: http://hdl.handle.net/10.1007/s11238-007-9039-1
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    Article provided by Springer in its journal Theory and Decision.

    Volume (Year): 62 (2007)
    Issue (Month): 4 (May)
    Pages: 335-353

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    Handle: RePEc:kap:theord:v:62:y:2007:i:4:p:335-353
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100341

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    1. Lipman, Barton L, 1991. "How to Decide How to Decide How to. . . : Modeling Limited Rationality," Econometrica, Econometric Society, vol. 59(4), pages 1105-25, July.
    2. Simon Grant & Atsushi Kajii & Ben Polak, 1996. "Preference for Information," Cowles Foundation Discussion Papers 1114, Cowles Foundation for Research in Economics, Yale University.
    3. Jacob Marschak, 1959. "Efficient and Viable Organizational Forms," Cowles Foundation Discussion Papers 65, Cowles Foundation for Research in Economics, Yale University.
    4. Hagen LINDSTÄDT, 2001. "More nonconcavities in information processing functions," Theory and Decision, Springer, vol. 51(2), pages 351-365, December.
    5. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
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