Evaluating correlated outcomes and sources of new information

Cornelis A De Kluyver, Robert L Carraway and Edgar A Pessemier

Omega, 1985, vol. 13, issue 1, 39-49

Abstract: This paper considers the difficulties associated with evaluating the expected value of additional information when the outcomes of various decision alternatives may be correlated. Such correlation is explained in terms of dependence of outcomes on common exogenous factors and it is argued that decisions regarding what, if any, additional information to collect should take such dependencies into account. A model-based 'fixed-parameter' approach to evaluating EVPI in such a context is developed and compared to the traditional 'fixed-correlation' approach. The results suggest that different assumptions about the issue of correlation can produce different, sometimes contradictory, conclusions about the expected value of additional information and bence, should be explicitly stated as part of any pre-posterior analysis. A hybrid model encompassing both approaches and rooted in the theory of psychology of inference is then proposed and illustrated.

Date: 1985
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