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Preference for Knowledge

Author

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  • Rommeswinkel, Hendrik
  • Chang, Hung-Chi
  • Hsu, Wen-Tai

Abstract

We examine the subjective value of gaining knowledge in a version of Savage's model for decisions under uncertainty in which the received outcome provides information about which event has obtained. Decision makers commonly value such knowledge either because they want to use it in future decisions or because they are personally interested in it. We find that in our model, the sure-thing principle and several other axioms of Savage are inconsistent with this value for knowledge about events. We provide a representation theorem for a subjective value of knowledge consisting of the sum of expected utility and a function of the information partition generated by the outcomes of an act. We characterize when the value of knowledge can be represented by a subjective value of knowledge about an information partition plus a Shannon entropy cost of processing information. Our results also provide a novel critique of the necessity of Savage's axioms for rational decisions under uncertainty.

Suggested Citation

  • Rommeswinkel, Hendrik & Chang, Hung-Chi & Hsu, Wen-Tai, 2023. "Preference for Knowledge," Journal of Economic Theory, Elsevier, vol. 214(C).
    • Handle: RePEc:eee:jetheo:v:214:y:2023:i:c:s0022053123001333
    DOI: 10.1016/j.jet.2023.105737
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    References listed on IDEAS

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    More about this item

    Keywords

    Decision theory; Uncertainty; Expected Utility; Knowledge; Information;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory

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