What is Value of Information?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 20 October 2019
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The value of information is the top price a person would be willing to pay to know the outcome of a decision before it happens. This plays a role in decision-making processes at every level, from deciding when to take a vacation to investing in stocks. In analysis of the value of information, a distinction is made between perfect and imperfect information, with perfect information being of more value. People can always choose to disregard the information after receiving it, which can skew the value.

In a simple example, a person might be considering a choice between receiving cancer treatment and choosing palliative care only. Perfect information would allow the patient to know whether the treatment will be successful before the treatment starts, and people might be willing to pay a high price for this. Imperfect information is less valuable, providing a projection or a forecast rather than firm information about the outcome. A doctor might be able to tell the patient that the treatment is successful in 75% of patients, for example.

When considering the value of information, in addition to looking at how much people are willing to pay, analysts may also consider the maximum amount people should pay for information. Sometimes, people are willing to pay more than the information is actually worth. People may value the ability to control and predict outcomes, and will not consider cost effectiveness in the process of making a decision about how to proceed with something.


A number of mathematical formulas are available to help people calculate the value of information in various settings. Quantifying some situations can be difficult. In the case of a cancer patient, for example, it may be difficult to place a monetary value on quality of life and comfort, although estimates about lost wages and other financial costs could be part of the equation. For a situation like buying a security, the equation may be easier to calculate, as people can look at clear costs and benefits for investing or choosing not to.

The study of decision-making includes a number of parameters, not just the value of information. Humans can also choose to proceed against recommendations, disregarding information or focusing on the imperfections in the information. Decision-making can also become more complicated when multiple people take part in the process, with each person influencing the decision and making it more difficult to predict how people will behave.


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