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Monotonicity of the Selling Price of Information with Risk Aversion in Two Action Decision Problems

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  • Niyazi Onur Bakir

    (Istanbul Kemerburgaz University)

Abstract

Various approaches have been introduced over the years to evaluate information in the expected utility framework. This paper analyzes the relationship between the degree of risk aversion and the selling price of information in a lottery setting with two actions. We show that the initial decision on the lottery as well as the attitude of the decision maker towards risk as a function of the initial wealth level are critical to characterizing this relationship. When the initial decision is to reject, a non-decreasingly risk averse decision maker asks for a higher selling price as he gets less risk averse. Conversely, when the initial decision is to accept, non-increasingly risk averse decision makers ask a higher selling price as they get more risk averse if information is collected on bounded lotteries. We also show that the assumption of the lower bound for lotteries can be relaxed for the quadratic utility family.

Suggested Citation

  • Niyazi Onur Bakir, 2015. "Monotonicity of the Selling Price of Information with Risk Aversion in Two Action Decision Problems," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 7(2), pages 71-90, June.
    • Handle: RePEc:psc:journl:v:7:y:2015:i:2:p:71-90
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    References listed on IDEAS

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    More about this item

    Keywords

    decision analysis; value of information; selling price; risk aversion; buying price;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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