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The Value of Information and Intensity of Preference

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  • Philippe Delquié

    (Decision Sciences Area, INSEAD, Fontainebleau F-77300, France)

Abstract

Previous research has documented the lack of clear relationships between the value of information and characteristics of the decision problem. This paper shows that the intensity of the decision maker's preference toward the prior choice alternatives can be regarded as the primary determinant of information value. The value of an information source, measured in utility units, is maximal when the decision maker is indifferent vis-à-vis the prior alternatives, and it is lower as the preference for one alternative over the others gets stronger. This holds under quite general conditions, which are made explicit, and for any decision maker's utility function, wealth, and background risks. The maximum buying price of information follows the same pattern for linear utility and, with a restriction, exponential utility, and this may hold approximately for other types of utility functions. The result provides a general, concise, and intuitive explanation for seemingly ill-behaved variations in the value of information. It indicates that nonmonotonic, quasi-concave relationships should generally be expected between value of information and parameters of the decision problem.

Suggested Citation

  • Philippe Delquié, 2008. "The Value of Information and Intensity of Preference," Decision Analysis, INFORMS, vol. 5(3), pages 129-139, September.
    • Handle: RePEc:inm:ordeca:v:5:y:2008:i:3:p:129-139
    DOI: 10.1287/deca.1080.0116
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    References listed on IDEAS

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    Cited by:

    1. Kim Kaivanto & David A. Peel, 2019. "Pre-Decision Side-Bet Sequences," Economics Bulletin, AccessEcon, vol. 39(1), pages 533-539.
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    3. Zhengwei Sun & Ali E. Abbas, 2014. "On the sensitivity of the value of information to risk aversion in two-action decision problems," Environment Systems and Decisions, Springer, vol. 34(1), pages 24-37, March.

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