Monotonicity of the Selling Price of Information with Risk Aversion in Two Action Decision Problems

Abstract

Various approaches have been introduced over the years to evaluate
information in the expected utility framework. This paper analyzes the
relationship between the degree of risk aversion and the selling price of
information in a lottery setting with two actions. We show that the initial
decision on the lottery as well as the attitude of the decision maker towards
risk as a function of the initial wealth level are critical to characterizing this
relationship. When the initial decision is to reject, a non-decreasingly risk
averse decision maker asks for a higher selling price as he gets less risk averse.
Conversely, when the initial decision is to accept, non-increasingly risk averse
decision makers ask a higher selling price as they get more risk averse if
information is collected on bounded lotteries. We also show that the assumption
of the lower bound for lotteries can be relaxed for the quadratic utility family.