Information-Dependent Expected Utility

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