Economics and search

, Fall, 1999. 1 1 ECONOMIC VALUE OF INFORMATION 2 1 Economic value of information Economists define the (economic) value of information in the context of an optimal choice problem. A consumer is making a choice to maximize expected utility or minimize expected cost. The value of information is the increment in expected utility resulting from the improved choice made possible by better information. Often this can be translated into some monetary equivalent representing how much someone would pay to acquire a given piece of information. (See Laffont 1989, page 61. ) To take a very simple example in an IR context, suppose that a user is given two sealed envelopes, one containing 100 the other containing 0. She is allowed to choose one, open it, and keep whatever is inside. To make things simple, suppose that she is risk-neutral, in the sense that she only cares about expected value. In the absence of any information, she would