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Buying price of event information in two-action decision problems

Author

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  • Niyazi Onur Bakır

    (TOBB University of Economics and Technology)

  • Georgia-Ann Klutke

    (Texas A&M University)

Abstract

Being able to determine in advance whether certain events occur or not enables a decision maker to reduce the uncertainty of a two-action lottery, although the exact outcome of the lottery may still not be known with certainty. This paper studies the á priori value of information in such a decision making environment. Of interest to the decision maker is to compare the value of information about different events in advance of gathering the information. Using buying price as value of information, we show that when information about the occurrence of two different events are offered to a risk neutral decision maker, the event with a greater contribution in absolute value to the expected value of the lottery has higher value in terms of its buying price. For risk averse decision makers, a preference condition needs to be imposed on the set difference of two events to obtain a generic conclusion. We provide several examples that demonstrate the usefulness of these results.

Suggested Citation

  • Niyazi Onur Bakır & Georgia-Ann Klutke, 2014. "Buying price of event information in two-action decision problems," Environment Systems and Decisions, Springer, vol. 34(1), pages 38-48, March.
    • Handle: RePEc:spr:envsyd:v:34:y:2014:i:1:d:10.1007_s10669-013-9478-x
    DOI: 10.1007/s10669-013-9478-x
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    References listed on IDEAS

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    1. Louis Eeckhoudt & Philippe Godfroid, 2000. "Risk Aversion and the Value of Information," The Journal of Economic Education, Taylor & Francis Journals, vol. 31(4), pages 382-388, December.
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    8. Ali E. Abbas & N. Onur Bakır & Georgia-Ann Klutke & Zhengwei Sun, 2013. "Effects of Risk Aversion on the Value of Information in Two-Action Decision Problems," Decision Analysis, INFORMS, vol. 10(3), pages 257-275, September.
    9. BakIr, Niyazi Onur & Klutke, Georgia-Ann, 2011. "Information and preference reversals in lotteries," European Journal of Operational Research, Elsevier, vol. 210(3), pages 752-756, May.
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    Cited by:

    1. Zou, Guang & Faber, Michael Havbro & González, Arturo & Banisoleiman, Kian, 2021. "Computing the value of information from periodic testing in holistic decision making under uncertainty," Reliability Engineering and System Safety, Elsevier, vol. 206(C).
    2. Jeffrey M. Keisler, 2014. "Value of information: facilitating targeted information acquisition in decision processes," Environment Systems and Decisions, Springer, vol. 34(1), pages 1-2, March.

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