Why Perfect Tests May Not be Worth Waiting For: Information as a Commodity

41 Pages Posted: 6 May 2020

See all articles by Kimon Drakopoulos

Kimon Drakopoulos

University of Southern California

Ramandeep S. Randhawa

University of Southern California

Date Written: April 11, 2020

Abstract

Information products provide agents with additional information that is used to update their actions. In many situations, access to such products can be quite limited. For instance, in epidemics, there tends to be a limited supply of medical testing kits, or tests. These tests are information products because their output of a positive or a negative answer informs individuals and authorities on the underlying state and the appropriate course of action. In this paper, using an analytical model, we show how the accuracy of a test in detecting the underlying state serves as a rationing device to ensure that the limited supply of information products is appropriately allocated to the high demand by heterogeneous agents. On the technical side, we find that in many settings, providing perfect information (or a perfect test) is sub-optimal, and a moderately good test is preferable. On the policy side, we use a numerical study of an evolving epidemic to confirm our theoretically derived insight that in the early stages of an epidemic investing on higher testing quality is not beneficial if testing availability is low.

Keywords: Information Products, Information Operations, Epidemics, Testing

Suggested Citation

Drakopoulos, Kimon and Randhawa, Ramandeep S., Why Perfect Tests May Not be Worth Waiting For: Information as a Commodity (April 11, 2020). Available at SSRN: https://ssrn.com/abstract=3565245 or http://dx.doi.org/10.2139/ssrn.3565245

Kimon Drakopoulos (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Ramandeep S. Randhawa

University of Southern California ( email )

Marshall School of Business
BRI 401, 3670 Trousdale Parkway
Los Angeles, CA 90089
United States

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