The Value of the Value of Information

Abstract

An important application of decision analysis is determining the value that information has to a decision maker. The expected value of information (EVOI) is the expected increase in the value (or decrease in the loss) associated with obtaining more information about quantities relevant to the decision process. The EVOI can be thought of as a measure of the importance of the uncertainty about a quantity in terms of the expected improvement in the decision that might be obtained from having additional information about it. Examples of EVOI quantities useful in risk management situations include the expected value of including uncertainty (EVIU), the expected value of perfect information (EVPI), and the expected value of sample information (EVSI). Value of information (VOI) analysis is useful because it makes the losses associated with decision errors explicit, balances competing probabilities and costs, helps identify the decision alternative that minimizes the expected loss, prioritizes spending on research, quantifies the value of the research to the decision maker, and provides an upper bound on what should be spent on getting information.