Stochastic Preference and Information Value



As we have seen time and again, the economic value of information depends not only on the decision problem and the statistical characteristics of prior knowl­edge and informativeness; it also depends on the decision maker’s preferences—preferences on the willingness to bear risk, and preferences on the choice of deci­sion criterion. Chapter 7 brings these preferences to the forefront. The chapter begins by recasting the approach of Chapters 2 and 3 into an alternate, equiva­lent, and oftentimes enlightening viewpoint for formulating and analyzing deci­sion problems under uncertainty. In this alternative formulation, the DM does not choose from among alternative actions, but rather from among the alterna­tive probability distributions on wealth that are induced by the choice of a spe­cific action or decision rule. Dealing directly with choice from among univariate probability measures over cash amounts puts the focus on the DM’s attitude towards risk as a determinant of information value. The chapter concludes with the topic of aversion to information, which can arise when a DM does not obey the standard linear expected utility criterion.


Risk Averter Risk Premium Reservation Price Initial Wealth Absolute Risk Aversion 
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© Springer Science+Business Media New York 1999

Authors and Affiliations

  1. 1.College of Business and Public AdministrationDrake UniversityDes MoinesUSA

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