The Economic Value of Information

1. Introduction and Overview.- 1.1 Information in Decision Making.- 1.1.1 The Basic Framework for Decision.- 1.1.2 Information and Information Sources.- 1.1.3 Statistical and Pragmatic Information.- 1.1.4 Ex-Post Value and Gain.- 1.2 Information in the Organization.- 1.2.1 Information Systems.- 1.2.2 User Information Processing.- 1.2.3 Information System Accounting.- 1.3 Economics of the Incorporation of Information.- 1.3.1 The Criterion.- 1.3.2 Ex-Ante Components of Decision Making.- 1.4 The Expected Value of an Information Source.- 1.4.1 Information Structure and Informativeness.- 1.4.2 The Measurement of Information Value: Chapters 2 and 3.- 1.4.3 The Assessment of Information Value: Chapters 4 and 5.- 1.4.4 Case Studies of Information Value.- 1.4.5 The Theory of Information Value: Chapters 6 and 7.- 1.5 Information Value, Cost, and Procurement.- 1.5.1 The Optimal Information Structure.- 1.5.2 Procuring Direct Information.- 1.5.3 Case Studies of Information Cost, Value, and Choice.- 1.6 System Design for Information Gain.- 1.6.1 Decision Theory, Information Science,and System Design.- 1.6.2 Information Use Environments.- 1.6.3 A Model of System Design and User Behavior.- 1.7 Information Social Science.- 1.7.1 The Information Society.- 1.7.2 How Monumental Are Recent Events?.- 2. The Value of the Informed Decision.- 2.1 Elements of a Decision Problem Under Uncertainty.- 2.1.1 Utility of Outcome.- 2.1.2 Decision Problems.- 2.1.3 Decision Making.- 2.2 The Framing of the Decision Problem.- 2.2.1 Practical Issues in Framing.- 2.2.2 Framing the State Space and Initial Knowledge.- 2.2.3 The Incorporation of Information.- 2.3 Useful Facts About Statistical Information.- 2.3.1 Statistical Properties of the Information Structure.- 2.3.2 The Finite Model.- 2.3.3 Some Specific Expectations.- 2.4 Value of the Informed Decision.- 2.4.1 Extensive Form Analysis.- 2.4.2 Perfect Information.- 2.4.3 Worthless Information.- 3. Measures of the Value of Information.- 3.1 Measures of the Value of a Message.- 3.1.1 Cash-Equivalent Values of a Decision.- 3.1.2 Value of Decisions Posterior to the Message.- 3.1.3 The Simplest Special Case.- 3.1.4 Two Examples.- 3.1.5 The Need for Preposterior Evaluation.- 3.2 Measures of the Value of a Source.- 3.2.1 Incremental Value from Incorporating Information.- 3.2.2 The Range of the Expected Value of Information.- 4. The Assessment of Statistical Information.- 4.1 Coherent Assessment of Probability Distributions.- 4.1.1 Coherence and Consistency.- 4.1.2 Families of Probability Densities.- 4.2 Assessment of Beliefs and Foreknowledge.- 4.2.1 Assessing a Univariate Distribution.- 4.2.2 Obtaining Qualitative Foreknowledge of Information.- 4.2.3 Expert Resolution.- 4.2.4 Analysis of a Track Record.- 4.3 Simplifying the Assessment.- 4.3.1 The Preposterior Mean.- 4.3.2 The Calibrated Noiseless Model.- 5. Models with Convenient Assessment and Interpretation.- 5.1 Models with Payoff Quadratic in the Action.- 5.1.1 The General Case.- 5.1.2 The Bivariate Normal Case.- 5.1.3 The Quadratic Team.- 5.2 Models with Payoff Linear in the State.- 5.2.1 Raiffa and Schlaifer's Approach.- 5.2.2 Application to Statistical Decision Problems.- 5.2.3 Application in a Dichotomy.- 5.2.4 The Inventory Problem.- 5.3 Models with Concave-Exponential Utility.- 5.3.1 Information Value with Separable Outcome.- 5.3.2 Applications with the Bivariate Normal Information Structure.- 5.4 Models with Nonseparable Outcome Betting and Investing Models.- 5.4.1 Nonseparability and Information Value:Two Examples.- 5.4.2 Arrow's Contingent Securities Model.- 5.5 Models with Multicategorical State Description.- 5.5.1 Multicategorical Information Structures.- 5.5.2 Bidding Models.- 5.6 Dynamic Models and the Role of Timeliness.- 5.6.1 Dynamic Decision Problems.- 5.6.2 Delay.- 5.6.3 The Value of Timeliness and Accuracy.- 5.6.4 Assessing the Joint Distribution of Messages and States Via the Kalman Filter.- 5.6.5 Stochastic Control Theory.- 5.7 Approximations and Bounds for the Value of Information.- 5.7.1 Use of the Taylor Series Expansion.- 5.7.2 Bounds for Stochastic Programming Problems.- 5.7.3 Approximating Information Value by Sampling.- 6. Statistical Determinants of Information Value.- 6.1 The Normal Form of Decision Analysis.- 6.1.1 Randomized Courses of Action.- 6.1.2 Decision Rules.- 6.1.3 Utility Possibilities and Admissibility.- 6.1.4 The Finite Model in Normal Form.- 6.1.5 Convexity in the Probabilities.- 6.2 Comparative Informativeness.- 6.2.1 The Relation "More Informative Than".- 6.2.2 Blackwell's Theorem.- 6.2.3 Special Cases.- 6.2.4 Constructing a Sequence of Structures Ranked by Informativeness.- 6.3 Informativeness, Prior Knowledge, and Value.- 6.3.1 The Value of Statistical Informativeness: The Binary Case.- 6.3.2 The Value of Systematic Redistribution of the Probability: Stochastic Dominance.- 6.3.3 The Differential Approach to the Value of Statistical Informativeness.- 6.3.4 Environmental Uncertainty.- 7. Stochastic Preference and Information Value.- 7.1 Prospects and Attitude Towards Risk.- 7.1.1 Prospects Induced by Actions.- 7.1.2 Cash Summarizations for Optimal Prospects.- 7.1.3 Attitude Towards Risk.- 7.2 Risk Preference and Information Value.- 7.2.1 Comparison of the Risk Averter's Optimal Prospects with the Risk Neutral Benchmark.- 7.2.2 Bounds on the Comparative Demand Value of Information.- 7.3 Nonlinear Models and Information Aversion.- 7.3.1 The Expected Utility Criterion.- 7.3.2 Troubles with the Expected Utility Model.- 7.3.3 Aversion to Information.- 8. Information Demand and Procurement.- 8.1 The Demand for Information.- 8.1.1 The Value of the Costly Informed Decision.- 8.1.2 Economic Consequences of Differential Information.- 8.1.3 Optimal and Suboptimal Information Possession.- 8.2 Information Procurement.- 8.2.1 The Informant as Agent of the DM.- 8.2.2 The Framework and Primary Assumptions.- 8.2.3 The Contract Design Problem.- 8.3 Optimal Incentive Contracts to Procure Information.- 8.3.1 The Expected Value of Information.- 8.3.2 The Optimal Contract Design.- 8.3.3 Implementation.- 8.3.4 Examples.- 8.3.5 Proofs of Lemmas 2, 3, and 4.- 9. Economics of Valuable Information Systems.- 9.1 Information Use Environments.- 9.1.1 Business Environments.- 9.1.2 Scientific and Technical Environments.- 9.1.3 User Assessment of Information Value.- 9.2 System Design and Information Gain.- 9.2.1 The Gain-Producing Activities of an Information System.- 9.2.2 System Data Processing.- 9.2.3 Design and Performance.- 9.3 Experiments in Ex-Ante Information Behavior.- 9.3.1 Normative and Descriptive Economics.- 9.3.2 Experiments in Information Acquisition.- 9.3.3 Experiments in Value Assessment.- 9.4 A Decision-Theoretic Model for System Design.- 9.4.1 The Framework.- 9.4.2 A Theory of Information Production and Cost.- 9.4.3 Information Gain in a Canonical Decision Problem.- 9.4.4 Reported Results from a Survey.- 9.4.5 Characterization of the Organization's Optimal System.- 9.5 Postlude.- References.- Acknowledgments.- Symbol Glossary.- Author Index.