Value of Information
In situations of decision making under uncertainty the acquisition of New Information can be an efficient way of reducing the uncertainty and improving the decision quality. Decision Tree Analysis can be used to estimate the maximum value one should be willing to pay for this New Information.
New Information is useful if it reduces uncertainty, but even then it does not necessarily add value. To add value the New Information must have the potential to change a future decision. The maximum value of new information depends on the
the Reliability of the New Information
the Decision Tree at the Current Situation.
This Thinking Tool uses Decision Tree Analysis to gives insights in the potential Value of Information and the data that effect that value. The analysis can give insight when evaluating decisions related to potential future information-gathering activities and. It should however be kept in mind that the calculation assumes that people:
are perfectly rational
care only about money
can give unbiased estimates of values and uncertainties
The application should be used while keeping these limitations is mind.
You can Install the Freeware here.
User Interface
The User Interface of the Application consists of two parts, 1) The Application Form and 2) the Excel Database to store Evaluations. The application guides you through the analysis in Three Steps:
Step1: Define Current Situation. Up to six scenarios branches can be built into the decision
Step2: Define Possible Outcomes and Probabilities of the New Information . Up to five different outcomes can be defined.
Step3: Evaluate Decision Trees and Value of Information
User Interface: GoExplore Value of Information