Information-Dependent Expected Utility

28 Pages Posted: 28 Sep 2016 Last revised: 12 Feb 2017

See all articles by Yucheng Liang

Yucheng Liang

Carnegie Mellon University - David A. Tepper School of Business

Date Written: February 11, 2017

Abstract

In decision problems under uncertainty, the subjective evaluation of an outcome can depend on the information content of its realization. To accommodate this dependence, we introduce and axiomatize a model of information-dependent expected utility by allowing the utility of an outcome to flexibly depend on its information content in an (Anscombe-Aumann) act. Subjective beliefs are identified in a special class of our model where the utility of an outcome can be decomposed as the sum of consumption utility and information utility. Our model allows for both information seeking and information averse preferences, as well as a comparative theory of information preferences. For information seeking preferences, we introduce a Hidden Acts representation where the value of information is as if induced from the expected utility of the optimal choice in a fictitious future decision problem given that information.

Keywords: expected utility, preference for information

JEL Classification: D01, D81

Suggested Citation

Liang, Yucheng, Information-Dependent Expected Utility (February 11, 2017). Available at SSRN: https://ssrn.com/abstract=2842714 or http://dx.doi.org/10.2139/ssrn.2842714

Yucheng Liang (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://yuchengliang.com

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