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Value of Information
Learning Objectives:
Probability and Perfect Information
The Expected Value of Information
Expected value of Imperfect Information
Value of information in Complex Problems
Value of information and Experts
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Value of Information
Value of Information: Some Basic Ideas
Probability and perfect information
Use conditional probabilities and Bayes
theorem to evaluate information in any
decision setting.
Value of Information
The Expected Value of Information
By considering the expected value, we can
decide whether:
An expert is worth consulting
Whether a test is worth performing
Or which of several information sources would
be the best to consult.
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Value of Information
Sensitivity Analysis, and Structuring
The first step is using a tornado diagram,
those variables to which the decision was
sensitive.
The second step, after constructing a
probabilistic model, may be to perform
sensitivity analysis on the probabilities.
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Value of Information
A third step in the structuring of a
probabilistic model would be to calculate
the EVPI for each uncertain event.
If EVPI is very low for an event, then there
is little sense in spending a lot of effort in
reducing the uncertainty by collecting
information.
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Value of Information
But if EVPI for an event is relatively high, it
may need to collecting of information
Such information can have a relatively large
payoffs by reducing uncertainty
This information can also improving the
decision makers EMV.
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Value of Information
Value of Information and Nonmonetary
Objectives
In most cases the only objective that matters
is making money
However in many decision situations there
are multiple objectives.
For example, consider the FAA bombdetection case again.
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Value of Information
FAA was interested in maximizing the
detection effectiveness and passenger
acceptance of the system
while at the same time minimizing the cost
and time to implementation.
Minimizing cost happens to be one of the
objectives.
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Value of Information
The answer would be to find the additional
cost
Additional cost make the net expected value
of getting the information equal to the
expected value without the information
Trade-off always establish to value the
information
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Value of Information
Suppose one objective is to minimize the
decision makers time
Different choices and different outcomes
require different amounts of time from the
decision maker.
Information can be valued in terms of time;
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Value of Information
Value of Information and Expert
Expert information typically is somewhat
interrelated and redundant.
The real challenge in expert use is to
recruiting experts who look at the same
problem from very different perspectives.
Use of expert from different field
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Value of Information
Summary
Make better decisions by considering the
expected value of information
Both influence diagrams and decision trees
can be used for calculating expected values
How to solve value-of-information
problems in more complex situations
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