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Information avoidance and overvaluation under epistemic constraints: Principles and implications for regulatory policies

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  • Pozzi, Matteo
  • Malings, Carl
  • Minca, Andreea

Abstract

The Value of Information (VoI) assesses the impact of data in a decision process. A risk-neutral agent, quantifying the VoI in monetary terms, prefers to collect data only if their VoI surpasses the cost to collect them. For an agent acting without external constraints, data have non-negative VoI (as free “information cannot hurt†) and those with an almost-negligible potential effect on the agent's belief have an almost-negligible VoI. However, these intuitive properties do not hold true for an agent acting under external constraints related to epistemic quantities, such as those posed by some regulations. For example, a manager forced to repair an asset when its probability of failure is too high can prefer to avoid collecting free information about the actual condition of the asset, and even to pay in order to avoid this, or she can assign a high VoI to almost-irrelevant data. Hence, by enforcing epistemic constraints in the regulations, the policy-maker can induce a range of counter-intuitive, but rational, behaviors, from information avoidance to over-evaluation of barely relevant information, in the agents obeying the regulations.

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  • Pozzi, Matteo & Malings, Carl & Minca, Andreea, 2020. "Information avoidance and overvaluation under epistemic constraints: Principles and implications for regulatory policies," Reliability Engineering and System Safety, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:reensy:v:197:y:2020:i:c:s0951832019301577
    DOI: 10.1016/j.ress.2020.106814
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    References listed on IDEAS

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    1. Memarzadeh, Milad & Pozzi, Matteo, 2016. "Value of information in sequential decision making: Component inspection, permanent monitoring and system-level scheduling," Reliability Engineering and System Safety, Elsevier, vol. 154(C), pages 137-151.
    2. Malings, Carl & Pozzi, Matteo, 2016. "Value of information for spatially distributed systems: Application to sensor placement," Reliability Engineering and System Safety, Elsevier, vol. 154(C), pages 219-233.
    3. Niklas Karlsson & George Loewenstein & Duane Seppi, 2009. "The ostrich effect: Selective attention to information," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 95-115, April.
    4. Russell Golman & David Hagmann & George Loewenstein, 2017. "Information Avoidance," Journal of Economic Literature, American Economic Association, vol. 55(1), pages 96-135, March.
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