Technical Note—The Effect of Risk Aversion on the Expected Value of Perfect Information

Abraham Mehrez
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Abraham Mehrez: Ben-Gurion University of the Negev, Beer Sheva, Israel

Operations Research, 1985, vol. 33, issue 2, 455-458

Abstract: We consider the value of information when the decision-maker is averse to risk, and identify a bound on the maximal amount that the decision-maker is willing to pay to completely reduce uncertainty. We show that, for a class of unfavorable projects with nonpositive expected monetary value, a decision-maker neutral to risk is willing to pay at least as much for perfect information as is a decision-maker who is averse to risk. Finally, we analyze the effect of shifting the mean of the a priori distribution of the project's monetary value, and calculate the value of perfect information for a family of utility functions and a class of symmetric distributions centered at zero.

Keywords: 92 decisions analysis applications; 323 information systems/management; 855 utility/preference applications (search for similar items in EconPapers)
Date: 1985
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:33:y:1985:i:2:p:455-458

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