The value of a stochastic information structure

Yaron Azrieli, Ehud Lehrer

Research output: Contribution to journalArticlepeer-review

Abstract

Upon observing a signal, a Bayesian decision maker updates her probability distribution over the state space, chooses an action, and receives a payoff that depends on the state and the action taken. An information structure determines the set of possible signals and the probability of each signal given a state. For a fixed decision problem, the value of an information structure is the maximal expected utility that the decision maker can get when the observed signals are governed by this structure. Thus, every decision problem induces a preference order over information structures according to their value. We characterize preference orders that can be obtained in this way. We also characterize the functions defined over information structures that measure their value.

Original languageEnglish
Pages (from-to)679-693
Number of pages15
JournalGames and Economic Behavior
Volume63
Issue number2
DOIs
StatePublished - Jul 2008

Keywords

  • Bayesian decision making
  • Information function
  • Information structure
  • Preference order

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