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Comparing information in general monotone decision problems

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  • Kim, Yonggyun

Abstract

I study the value of information in monotone decision problems with potentially multidimensional action spaces. As a criterion for comparing information structures, I develop a condition called monotone quasi-garbling, which involves adding reversely monotone noise to an existing information structure. Specifically, this noise is more likely to return a higher signal in a lower state and a lower signal in a higher state. I show that monotone quasi-garbling is a necessary and sufficient condition for decision makers to obtain a higher ex-ante expected payoff. This new criterion refines the garbling condition by Blackwell (1951, 1953) and is equivalent to the accuracy condition by Lehmann (1988) under the monotone likelihood ratio property. To illustrate, I apply the result to problems in nonlinear monopoly pricing and optimal insurance.

Suggested Citation

  • Kim, Yonggyun, 2023. "Comparing information in general monotone decision problems," Journal of Economic Theory, Elsevier, vol. 211(C).
    • Handle: RePEc:eee:jetheo:v:211:y:2023:i:c:s0022053123000753
    DOI: 10.1016/j.jet.2023.105679
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    References listed on IDEAS

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    More about this item

    Keywords

    Informativeness; Blackwell's garbling condition; Lehmann's accuracy condition; Optimal insurance; Nonlinear pricing;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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