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COMPARATIVE EVALUATION OF INFORMATION UNDER TWO BUSINESS OBJECTIVES
Author(s) -
Ahituv Niv,
Wand Yair
Publication year - 1984
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1984.tb01195.x
Subject(s) - satisficing , stochastic game , computer science , maximization , value of information , set (abstract data type) , constraint (computer aided design) , expected utility hypothesis , operations research , mathematical optimization , mathematical economics , economics , microeconomics , mathematics , artificial intelligence , geometry , programming language
Information economics models evaluate the value of information under the assumption that decision makers wish to maximize their expected payoff. This assumption has been criticized for not being realistic enough since decision makers usually consider more than one business objective and might be satisficers rather than optimizers. This paper attempts to apply an information economics model to decision situations where two business performance criteria, expected payoff and risk, are considered. In order to overcome the difficulty of unknown trade‐off between the two criteria, one criterion is used as an objective to be optimized, while the other is set as a constraint. This may be interpreted as a combination of optimizing and satisficing approaches. It is shown how an information system can be evaluated in terms of both expected payoff and risk. The model suggests the trade‐off between the two criteria as an additional trait of an information system. In the last part of the paper, a numerical example illustrates how a comparative evaluation of information structures is performed when risk minimization and expected payoff maximization are concurrently used as business performance criteria.