The rationality and efficacy of decisions under uncertainty and the value of an experiment (*)

Hyun Song Shin and Stephen Morris

Economic Theory, 1997, vol. 9, issue 2, 309-324

Abstract: A decision maker faces a known prior distribution over payoff relevant states. We compare the expected utility of this individual under two scenarios. In the first, the decision maker makes a choice without further information. In the second, the decision maker has access to an experiment before choosing an action. However, the decision maker does not know the true joint distribution over states and messages. The value of the experiment as measured by the difference in the two utility levels can be negative as well as positive. We give a condition which is necessary and sufficient for the experiment to be valuable in our sense, for any decision problem.

Date: 1997
Note: Received: March 17, 1995; revised version September 11, 1995
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