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Valuing Information in Decision Making Under Uncertainty
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Warren R. Hughes
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Abstract
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A methodology is outlined for objectively determining the potential value of information in a decision theoretic context in the absence of any prior information. Accordingly, two or more decision situations can be valued to determine where scarce information resources are best deployed. It is shown how minimum and maximum EVPI can be determined for a given payoff matrix as a game against nature. The information gains (or losses) in dollar or percentage terms can also be determined as the decision maker moves through various information stages such as null, vague and proper prior distributions. Differences between this methodology and an entropy approach to information valuation are illustrated.
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Keywords
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DECISION THEORY; VALUE OF INFORMATION; ENTROPY; PRIOR INFORMATION.
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Contact Details
Warren R. Hughes
Department of Economics
The University of Waikato
Private Bag 3105
Hamilton, NEW ZEALAND
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The author would like to acknowledge the constructive comments of two referees on an earlier version of this paper. Any errors or omissions in the present version are the sole responsibility of the author.
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