Decision Problems with an Outside Option

9 Pages Posted: 6 Dec 2005

See all articles by Ehud Lehrer

Ehud Lehrer

Tel Aviv University - School of Mathematical Sciences

Eran Shmaya

Tel Aviv University - School of Mathematical Sciences

Date Written: November 24, 2005

Abstract

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

Lehrer, Ehud and Shmaya, Eran, Decision Problems with an Outside Option (November 24, 2005). Available at SSRN: https://ssrn.com/abstract=862164 or http://dx.doi.org/10.2139/ssrn.862164

Ehud Lehrer (Contact Author)

Tel Aviv University - School of Mathematical Sciences ( email )

Tel Aviv 69978
Israel

Eran Shmaya

Tel Aviv University - School of Mathematical Sciences ( email )

Tel Aviv 69978
Israel

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