IDEAS home Printed from https://ideas.repec.org/a/kap/jrisku/v18y1999i2p125-36.html
   My bibliography  Save this article

Lottery Acquisition versus Information Acquisition: Prices and Preference Reversals

Author

Listed:
  • Hazen, Gordon B
  • Sounderpandian, Jayavel

Abstract

Suppose you must choose between two pieces of information: A and B. In the absence of cost, you would prefer to obtain A rather than B, and in fact would be willing to take more risk to obtain A than B. Nevertheless, you would pay more money for B than for A. Are your preferences consistent with expected utility? The answer is yes; they may very well be. We give an example to illustrate how this may happen, and relate this reversal phenomenon to the well-known discrepancy between buying and selling prices for lotteries. Along the way, we demonstrate that even though selling an information source is strictly analogous to selling a lottery, buying an information source is not strictly analogous to buying a lottery. However, for any collection of lotteries there is a decision problem with corresponding information sources, each source having both buying price and selling price equal to the buying and selling prices of the corresponding lottery. The existence of preference reversals for mode of information acquisition dispels any notion that the relative value of competing information acquisitions should not depend on the nature of the acquisition. Among expected utility maximizers, only those with constant risk attitude avoid these reversals. Copyright 1999 by Kluwer Academic Publishers

Suggested Citation

  • Hazen, Gordon B & Sounderpandian, Jayavel, 1999. "Lottery Acquisition versus Information Acquisition: Prices and Preference Reversals," Journal of Risk and Uncertainty, Springer, vol. 18(2), pages 125-136, August.
    • Handle: RePEc:kap:jrisku:v:18:y:1999:i:2:p:125-36
    as

    Download full text from publisher

    File URL: http://journals.kluweronline.com/issn/0895-5646/contents
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Borgonovo, Emanuele & Hazen, Gordon B. & Jose, Victor Richmond R. & Plischke, Elmar, 2021. "Probabilistic sensitivity measures as information value," European Journal of Operational Research, Elsevier, vol. 289(2), pages 595-610.
    2. Niyazi Onur Bakir, 2015. "Monotonicity of the Selling Price of Information with Risk Aversion in Two Action Decision Problems," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 7(2), pages 71-90, June.
    3. 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.
    4. Janzwood, Scott, 2021. "R&D priority-setting for global catastrophic risks: The case of the NASA planetary defense mission," Research Policy, Elsevier, vol. 50(6).
    5. Niyazi Onur Bakır & Georgia-Ann Klutke, 2014. "Buying price of event information in two-action decision problems," Environment Systems and Decisions, Springer, vol. 34(1), pages 38-48, March.
    6. Ali E. Abbas & N. Onur Bakır & Georgia-Ann Klutke & Zhengwei Sun, 2013. "Effects of Risk Aversion on the Value of Information in Two-Action Decision Problems," Decision Analysis, INFORMS, vol. 10(3), pages 257-275, September.
    7. Borgonovo, Emanuele & Plischke, Elmar, 2016. "Sensitivity analysis: A review of recent advances," European Journal of Operational Research, Elsevier, vol. 248(3), pages 869-887.
    8. Emanuele Borgonovo & Alessandra Cillo, 2017. "Deciding with Thresholds: Importance Measures and Value of Information," Risk Analysis, John Wiley & Sons, vol. 37(10), pages 1828-1848, October.
    9. BakIr, Niyazi Onur & Klutke, Georgia-Ann, 2011. "Information and preference reversals in lotteries," European Journal of Operational Research, Elsevier, vol. 210(3), pages 752-756, May.

    More about this item

    Statistics

    Access and download statistics

    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:kap:jrisku:v:18:y:1999:i:2:p:125-36. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.