Professor Ehud Lehrer ehud.m.lehrer@durham.ac.uk
Professor in Economics
The Value of Information in Stopping Problems
Lehrer, Ehud; Wang, Tao
Authors
Tao Wang
Abstract
We consider stopping problems in which a decision maker (DM) faces an unknown state of nature and decides sequentially whether to stop and take an irreversible action, or pay a fee and obtain additional information. We discuss the value and quality of information. The former is the maximal discounted expected total payment the DM can generate under a history-dependent fee scheme. We show that among all history-dependent fee schemes, the upfront fee scheme (as opposed, for instance, to pay-for-use) is optimal: it achieves the value of information. The effects on the optimal strategy of obtaining information from a more accurate source and of having a higher discount factor are distinct, as far as expected stopping time and its distribution are concerned. However, these factors have a similar effect in that they both enlarge the set of cases in which the optimal strategy prescribes waiting.
Citation
Lehrer, E., & Wang, T. (online). The Value of Information in Stopping Problems. Economic Theory, 78, 619–648. https://doi.org/10.1007/s00199-023-01543-8
Journal Article Type | Article |
---|---|
Acceptance Date | Nov 15, 2023 |
Online Publication Date | Dec 26, 2023 |
Deposit Date | Aug 16, 2023 |
Publicly Available Date | Dec 27, 2024 |
Journal | Economic Theory |
Print ISSN | 0938-2259 |
Electronic ISSN | 1432-0479 |
Publisher | Springer |
Peer Reviewed | Peer Reviewed |
Volume | 78 |
Pages | 619–648 |
DOI | https://doi.org/10.1007/s00199-023-01543-8 |
Public URL | https://durham-repository.worktribe.com/output/1719495 |
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