Value of Information and Risk Attitudes

Abstract

Information available to road users through ITS systems, GPS technology and the internet has become prevalent over the last two decades. Therefore, it is critical to understand how individuals value information to determine pricing structures as well as cost benefit analysis to implement information systems. An important behavioral characteristic that influences people’s valuation of information are risk attitudes. There have been a number of studies that have looked at the value of information for a user, but there is no study that explicitly evaluates the impact of information in a choice set on risk attitudes, which ultimately affects people’s value for information. This study conducts a controlled laboratory experiment using methods of experimental economics to measure the risk attitudes of users with and without the presence of information in the choice set. The authors use models derived from Expected Utility Theory (EUT) and Rank-Dependent Utility Theory (RDU) to infer the risk attitudes of the subjects. The results of the study indicate that the presence of information in the choice set reduces risk aversion. There is a change in risk attitude from the case of no information to with information. The study demonstrates that the reduction in risk attitudes translates to reduction in people’s valuation of information. It is critical to systematically incorporate these differences into the behavior models, since neglecting to incorporate this fundamental difference could result in disastrous policy decisions, with respect to overpricing information, or inappropriately allocating funds for information systems.

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