The Value of Information Given Decision Flexibility

• Author(s): Stanford University. Engineering-Economic Systems Department. Decision Analysis Program, Miley Wesson Merkhofer,
• Publisher: Stanford University
• Pages: 34
• Language: en

Description:... This paper presents a useful concept for decision analysis -- the value of information having flexibility. An exploration is made into the impact of decision flexibility on the value of information. The usefulness of calculating the value of information under various assumptions concerning decision flexibility is illustrated with a simple economic example. An upper limit to the value of information given flexibility is the expected value of perfect information given perfect flexibility (EVPIGPF). By approximating an arbitrary smooth value function with a quadratic equation, first order characteristics of the EVPIGPF are identified. Finally, it is shown that the technique of proximal decision analysis may be expanded to provide a simplified estimation of the EVPIGPF for large-scale decision problems.