IDEAS home Printed from https://ideas.repec.org/a/inm/ordeca/v1y2004i3p177-189.html
   My bibliography  Save this article

Value of Information in Portfolio Decision Analysis

Author

Listed:
  • Jeffrey Keisler

    (University of Massachusetts, Boston, Massachusetts 02125)

Abstract

It can be time consuming to use decision analysis to allocate resources over a portfolio of projects. It may be possible to attain most of the value added by decision analysis in significantly less time. This paper defines and compares different analytic strategies in terms of the resulting value added for a range of simulated portfolios. A portfolio consists of a set of candidate projects or investments of uncertain value. The value of each project may be estimated with or without the additional information provided by decision-analytic methods. Projects are then completely prioritized and funded in order of the ratio of their expected net present value to their cost, or partially prioritized and funded whenever this ratio exceeds a predefined threshold level. The portfolio funded under the various analytic strategies is compared against a strawman alternative of random funding decisions. The value added through disciplined prioritization often exceeds the additional value added through the more costly step of developing refined estimates of project values. Intermediate approaches, including threshold approaches and the application of triage rules to determine which projects to analyze, are found to be useful but not robust.

Suggested Citation

  • Jeffrey Keisler, 2004. "Value of Information in Portfolio Decision Analysis," Decision Analysis, INFORMS, vol. 1(3), pages 177-189, September.
    • Handle: RePEc:inm:ordeca:v:1:y:2004:i:3:p:177-189
    DOI: 10.1287/deca.1040.0023
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/deca.1040.0023
    Download Restriction: no
    File URL: https://libkey.io/10.1287/deca.1040.0023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Robert T. Clemen & Robert C. Kwit, 2001. "The Value of Decision Analysis at Eastman Kodak Company, 1990-1999," Interfaces, INFORMS, vol. 31(5), pages 74-92, October.
    2. Ronald A. Howard, 1988. "Decision Analysis: Practice and Promise," Management Science, INFORMS, vol. 34(6), pages 679-695, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vilkkumaa, Eeva & Liesiö, Juuso & Salo, Ahti, 2014. "Optimal strategies for selecting project portfolios using uncertain value estimates," European Journal of Operational Research, Elsevier, vol. 233(3), pages 772-783.
    2. L. Robin Keller & Ali Abbas & Manel Baucells & Vicki M. Bier & David Budescu & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Ahti Salo & George Wu, 2010. "From the Editors..," Decision Analysis, INFORMS, vol. 7(4), pages 327-330, December.
      • L. Robin Keller & Manel Baucells & Kevin F. McCardle & Gregory S. Parnell & Ahti Salo, 2007. "From the Editors..," Decision Analysis, INFORMS, vol. 4(4), pages 173-175, December.
      • L. Robin Keller & Manel Baucells & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Gregory S. Parnell & Ahti Salo, 2008. "From the Editors..," Decision Analysis, INFORMS, vol. 5(4), pages 173-176, December.
      • L. Robin Keller & Manel Baucells & John C. Butler & Philippe Delquié & Jason R. W. Merrick & Gregory S. Parnell & Ahti Salo, 2009. "From the Editors ..," Decision Analysis, INFORMS, vol. 6(4), pages 199-201, December.
    3. Gary J. Summers, 2021. "Friction and Decision Rules in Portfolio Decision Analysis," Decision Analysis, INFORMS, vol. 18(2), pages 101-120, June.
    4. Kun Zan & J. Eric Bickel, 2013. "Components of Portfolio Value of Information," Decision Analysis, INFORMS, vol. 10(2), pages 171-185, June.
    5. L. Robin Keller, 2008. "From the Editor..," Decision Analysis, INFORMS, vol. 5(3), pages 113-115, September.
    6. Euan Barlow & Alec Morton & Saudamini Dabak & Sven Engels & Wanrudee Isaranuwatchai & Yot Teerawattananon & Kalipso Chalkidou, 2022. "What is the value of explicit priority setting for health interventions? A simulation study," Health Care Management Science, Springer, vol. 25(3), pages 460-483, September.
    7. Lahtinen, Tuomas J. & Hämäläinen, Raimo P. & Jenytin, Cosmo, 2020. "On preference elicitation processes which mitigate the accumulation of biases in multi-criteria decision analysis," European Journal of Operational Research, Elsevier, vol. 282(1), pages 201-210.
    8. Rakesh K. Sarin, 2013. "From the Editor —Optimal Betting, Reducing Unnecessary Mammography in Breast Cancer Diagnosis, Product Line Design, and Value of Information," Decision Analysis, INFORMS, vol. 10(3), pages 187-188, September.
    9. L. Robin Keller & Kelly M. Kophazi, 2012. "From the Editors ---Copulas, Group Preferences, Multilevel Defenders, Sharing Rewards, and Communicating Analytics," Decision Analysis, INFORMS, vol. 9(3), pages 213-218, September.
    10. Mancuso, A. & Compare, M. & Salo, A. & Zio, E., 2021. "Optimal Prognostics and Health Management-driven inspection and maintenance strategies for industrial systems," Reliability Engineering and System Safety, Elsevier, vol. 210(C).
    11. Anthony Michael Barrett, 2017. "Value of Global Catastrophic Risk (GCR) Information: Cost-Effectiveness-Based Approach for GCR Reduction," Decision Analysis, INFORMS, vol. 14(3), pages 187-203, September.
    12. Tom Pape, 2020. "Value of agreement in decision analysis: Concept, measures and application," Papers 2012.13816, arXiv.org.
    13. Salo, Ahti & Doumpos, Michalis & Liesiö, Juuso & Zopounidis, Constantin, 2024. "Fifty years of portfolio optimization," European Journal of Operational Research, Elsevier, vol. 318(1), pages 1-18.
    14. Carlo Drago & Matteo Ruggeri, 2019. "Setting research priorities in the field of emergency management: which piece of information are you willing to pay more?," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(4), pages 2103-2115, July.
    15. Yeawon Yoo & Adolfo R. Escobedo, 2021. "A New Binary Programming Formulation and Social Choice Property for Kemeny Rank Aggregation," Decision Analysis, INFORMS, vol. 18(4), pages 296-320, December.
    16. Thomas Weber, 2010. "Simple methods for evaluating and comparing binary experiments," Theory and Decision, Springer, vol. 69(2), pages 257-288, August.
    17. Richard A. Moynihan & Robert C. Reining & Patricia P. Salamone & Brian K. Schmidt, 2009. "Enterprise scale portfolio analysis at the national oceanic and atmospheric administration (NOAA)," Systems Engineering, John Wiley & Sons, vol. 12(2), pages 155-168, June.
    18. Peter I. Frazier & Warren B. Powell, 2010. "Paradoxes in Learning and the Marginal Value of Information," Decision Analysis, INFORMS, vol. 7(4), pages 378-403, December.
    19. Chidambaram Subbiah & Andrea C. Hupman & Haitao Li & Joseph Simonis, 2023. "Improving Software Development Effort Estimation with a Novel Design Pattern Model," Interfaces, INFORMS, vol. 53(3), pages 192-206, May.
    20. Rakesh K. Sarin & L. Robin Keller, 2013. "From the Editors ---Group Decisions, Preference Elicitation, Experienced Utility, Survival Probabilities, and Portfolio Value of Information," Decision Analysis, INFORMS, vol. 10(2), pages 99-102, June.
    21. Pape, Tom, 2017. "Value of agreement in decision analysis: concept, measures and application," LSE Research Online Documents on Economics 68682, London School of Economics and Political Science, LSE Library.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Baker, Erin & Keisler, Jeffrey M., 2011. "Cellulosic biofuels: Expert views on prospects for advancement," Energy, Elsevier, vol. 36(1), pages 595-605.
    2. Ana Sofia Morais & Wasilios Hariskos, 2018. "Academic coaching and decision analysis: Ways of deciding whether to pursue an academic career," PLOS ONE, Public Library of Science, vol. 13(11), pages 1-18, November.
    3. Baker, Erin & Solak, Senay, 2011. "Climate change and optimal energy technology R&D policy," European Journal of Operational Research, Elsevier, vol. 213(2), pages 442-454, September.
    4. Baker, Erin & Chon, Haewon & Keisler, Jeffrey, 2009. "Advanced solar R&D: Combining economic analysis with expert elicitations to inform climate policy," Energy Economics, Elsevier, vol. 31(Supplemen), pages 37-49.
    5. repec:cup:judgdm:v:1:y:2006:i::p:162-173 is not listed on IDEAS
    6. Alan Brennan & Samer Kharroubi & Anthony O'Hagan & Jim Chilcott, 2007. "Calculating Partial Expected Value of Perfect Information via Monte Carlo Sampling Algorithms," Medical Decision Making, , vol. 27(4), pages 448-470, July.
    7. Thomas W. Keelin & Bradford W. Powley, 2011. "Quantile-Parameterized Distributions," Decision Analysis, INFORMS, vol. 8(3), pages 206-219, September.
    8. David V. Pynadath & Bistra Dilkina & David C. Jeong & Richard S. John & Stacy C. Marsella & Chirag Merchant & Lynn C. Miller & Stephen J. Read, 2023. "Disaster world," Computational and Mathematical Organization Theory, Springer, vol. 29(1), pages 84-117, March.
    9. Caetani, Alberto Pavlick & Ferreira, Luciano & Borenstein, Denis, 2016. "Development of an integrated decision-making method for an oil refinery restructuring in Brazil," Energy, Elsevier, vol. 111(C), pages 197-210.
    10. Lu, Xuefei & Borgonovo, Emanuele, 2023. "Global sensitivity analysis in epidemiological modeling," European Journal of Operational Research, Elsevier, vol. 304(1), pages 9-24.
    11. Kaufman, Gordon M. & Mattar, Mahdi, 2003. "Private Risk," Working papers 4316-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    12. Craig R. Fox & Robert T. Clemen, 2005. "Subjective Probability Assessment in Decision Analysis: Partition Dependence and Bias Toward the Ignorance Prior," Management Science, INFORMS, vol. 51(9), pages 1417-1432, September.
    13. James C. Felli & Gordon B. Hazen, 2004. "Javelin Diagrams: A Graphical Tool for Probabilistic Sensitivity Analysis," Decision Analysis, INFORMS, vol. 1(2), pages 93-107, June.
    14. Dimitrios Gouglas & Kendall Hoyt & Elizabeth Peacocke & Aristidis Kaloudis & Trygve Ottersen & John-Arne Røttingen, 2019. "Setting Strategic Objectives for the Coalition for Epidemic Preparedness Innovations: An Exploratory Decision Analysis Process," Service Science, INFORMS, vol. 49(6), pages 430-446, November.
    15. Ali E. Abbas & Il-Horn Hann, 2010. "Measuring Risk Aversion in a Name-Your-Own-Price Channel," Decision Analysis, INFORMS, vol. 7(1), pages 123-136, March.
    16. Donald L. Keefer & Craig W. Kirkwood & James L. Corner, 2004. "Perspective on Decision Analysis Applications, 1990–2001," Decision Analysis, INFORMS, vol. 1(1), pages 4-22, March.
    17. Julie Rozenberg & Céline Guivarch & Robert Lempert & Stéphane Hallegatte, 2014. "Building SSPs for climate policy analysis: a scenario elicitation methodology to map the space of possible future challenges to mitigation and adaptation," Climatic Change, Springer, vol. 122(3), pages 509-522, February.
    18. Sergio Chayet & Wallace J. Hopp, 2008. "Risk‐sensitive sizing of responsive facilities," Naval Research Logistics (NRL), John Wiley & Sons, vol. 55(3), pages 218-233, April.
    19. Roberto Ley-Borrás, 2015. "Deciding on the Decision Situation to Analyze: The Critical First Step of a Decision Analysis," Decision Analysis, INFORMS, vol. 12(1), pages 46-58, March.
    20. Douglas K. Owens & Robert F. Nease Jr., 1997. "A Normative Analytic Framework for Development of Practice Guidelines for Specific Clinical Populations," Medical Decision Making, , vol. 17(4), pages 409-426, October.
    21. Bogumił Kamiński & Michał Jakubczyk & Przemysław Szufel, 2018. "A framework for sensitivity analysis of decision trees," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 26(1), pages 135-159, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ordeca:v:1:y:2004:i:3:p:177-189. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.