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Paradoxes in Learning and the Marginal Value of Information

Author

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  • Peter I. Frazier

    (School of Operations Research and Information Engineering, Cornell University, Ithaca, New York 14853)

  • Warren B. Powell

    (Department of Operations Research and Financial Engineering, Princeton University, Princeton, New Jersey 08544)

Abstract

We consider the Bayesian ranking and selection problem, in which one wishes to allocate an information collection budget as efficiently as possible to choose the best among several alternatives. In this problem, the marginal value of information is not concave, leading to algorithmic difficulties and apparent paradoxes. Among these paradoxes is that when there are many identical alternatives, it is often better to ignore some completely and focus on a smaller number than it is to spread the measurement budget equally across all the alternatives. We analyze the consequences of this nonconcavity in several classes of ranking and selection problems, showing that the value of information is “eventually concave,” i.e., concave when the number of measurements of each alternative is large enough. We also present a new fully sequential measurement strategy that addresses the challenge that nonconcavity it presents.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:ordeca:v:7:y:2010:i:4:p:378-403
    DOI: 10.1287/deca.1100.0190
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    References listed on IDEAS

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    3. Hoffmann, Florian & Inderst, Roman & Turlo, Sergey, 2018. "Regulating Cancellation Rights with Consumer Experimentation," EconStor Preprints 253659, ZBW - Leibniz Information Centre for Economics.
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      • 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.
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    10. Ilya O. Ryzhov, 2016. "On the Convergence Rates of Expected Improvement Methods," Operations Research, INFORMS, vol. 64(6), pages 1515-1528, December.
    11. L. Robin Keller & Ali Abbas & J. Eric Bickel & Vicki M. Bier & David V. Budescu & John C. Butler & Philippe Delquié & Kenneth C. Lichtendahl & Jason R. W. Merrick & Ahti Salo & George Wu, 2011. "From the Editors ---Probability Scoring Rules, Ambiguity, Multiattribute Terrorist Utility, and Sensitivity Analysis," Decision Analysis, INFORMS, vol. 8(4), pages 251-255, December.
    12. Daniel Russo & Benjamin Van Roy, 2018. "Learning to Optimize via Information-Directed Sampling," Operations Research, INFORMS, vol. 66(1), pages 230-252, January.
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    14. Francisco Santos-Arteaga & Debora Di Caprio & Madjid Tavana, 2014. "A Self-regulating Information Acquisition Algorithm for Preventing Choice Regret in Multi-perspective Decision Making," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 6(3), pages 165-175, June.
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