The value of information in decision making

Abstract

This paper reports upon an experiment conducted to test a normative model of information evaluation as a descriptive representation of human behavior in judging the value of information. The test was conducted under a more general set of assumptions than those used in previous research. Subjects judged the maximum amount that they would be willing to pay for a single marble drawn from one of two urns containing many black and white marbles. Five levels of priors and accuracy of the information source, and three types of decision maker models were experimentally manipulated. The results confirm previous research which has suggested that normative models are not appropriate descriptive representations of information evaluation behavior. Among alternative models tested, observed behavior was best represented by one containing a multiplicative rule to combine the subjective levels of accuracy, priors, and type of decision maker, and an averaging rule to combine the manipulated factors.