Decision Problems with an Outside Option
9 Pages Posted: 6 Dec 2005
Date Written: November 24, 2005
In a decision problem with uncertainty a decision maker receives partial information about the actual state via an information structure. After receiving a signal he is allowed to withdraw and get 0. We say that one structure is weakly better than another if it may never happen that the latter guarantees a positive profit while the former guarantees only 0. We characterize this order between information structures in terms that are different from those used by Blackwell's comparison of experiments.
We also treat the case of malicious nature that chooses a state in an adverse manner. It turns out that Blackwell's classical characterization holds also in this case.
Keywords: outside option, comparison of experiments, information structure
JEL Classification: C44, D80
Suggested Citation: Suggested Citation