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The rationality and efficacy of decisions under uncertainty and the value of an experiment (*)

Author

Listed:
  • Hyun Song Shin

    (Nuffield College, Oxford OX1 1NF, ENGLAND)

  • Stephen Morris

    (Department of Economics, University of Pennsylvania, Philadelphia, PA 19104-6297, USA)

Abstract

A decision maker faces a known prior distribution over payoff relevant states. We compare the expected utility of this individual under two scenarios. In the first, the decision maker makes a choice without further information. In the second, the decision maker has access to an experiment before choosing an action. However, the decision maker does not know the true joint distribution over states and messages. The value of the experiment as measured by the difference in the two utility levels can be negative as well as positive. We give a condition which is necessary and sufficient for the experiment to be valuable in our sense, for any decision problem.

Suggested Citation

  • Hyun Song Shin & Stephen Morris, 1997. "The rationality and efficacy of decisions under uncertainty and the value of an experiment (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(2), pages 309-324.
    • Handle: RePEc:spr:joecth:v:9:y:1997:i:2:p:309-324
    Note: Received: March 17, 1995; revised version September 11, 1995
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    Cited by:

    1. Galanis, Spyros, 2016. "The value of information in risk-sharing environments with unawareness," Discussion Paper Series In Economics And Econometrics 1602, Economics Division, School of Social Sciences, University of Southampton.
    2. Francesco Squintani, 1999. "On-the-Job Signaling and Self-Confidence," Discussion Papers 1274, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Galanis, Spyros, 2015. "The value of information under unawareness," Journal of Economic Theory, Elsevier, vol. 157(C), pages 384-396.
    4. Fukuda, Satoshi, 2021. "Unawareness without AU Introspection," Journal of Mathematical Economics, Elsevier, vol. 94(C).
    5. Galanis, Spyros, 2016. "The value of information in risk-sharing environments with unawareness," Games and Economic Behavior, Elsevier, vol. 97(C), pages 1-18.

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