Value of Information

 

The decision theory suggests the methods of solving the problems of decision making under certainty, risk and uncertainty.  A decision making situation is of certainty when the decision maker has full knowledge about the alternatives and its outcomes. This is possible when perfect information is available. Therefore, the information has a perceived value in terms of decision making. The decision maker feels more secured when additional information is received in case of decision making under an uncertainty or a risk. The information is called perfect information, if it wipes out uncertainty or risk completely. However, perfect information is a myth.

 

Table: The Methods of Data and Information Collection

 

Method	Example	Comment
Observation	The first hand knowledge avoids a response bias. An accuracy of observation will decide the response. It is dependent on the observer and is influenced by the bias.	Visit to the customer for assessing the customer complaints. A visit to assess the accidental damage.
Experiment	The information on a specific parameter can be obtained through a control over variables. The quality of information depends on the design of the experiments.	Assembly the yield of a new fertilizer by a design of the control experiment. Assessing the market response to a new packaging through test marketing.
Survey	One time. Enables to cover the interested population on specific aspects. The quality of questionnaire will decide the quality of information.	Market survey, opinion polls, and census.
Subjective Estimation	In the absence of all the three above, the expert options may be called to collect the information.	Data pertaining to future like the alternate sources of energy, the life style in the 21st century.
Transaction Processing	The data exists but needs a processing and integration for reporting.	Ledgers, payroll, stock statements, sales report.
Purchased from outside	Easily available at a price. May be expensive and many have a bias depending on the source.	Databases on the specific subject, research studies.  Market and technology studies.
Publications	Low cost but may project or emphasize one view or the other.  Information may be lopsided.	The government publications, the industry publications, the institutional publications such as NCAER, NCL, BANKS, UNO the various public forums.
Government agencies	Available but may not be directly useful not knowing the details of collection analysis is usually not the latest.	The Reverse Bank of India publications. The Tax publications, the reports and findings.

 

 

The decision theory stipulates that the value of the additional information is the value of the change in the decision behavior, resulted by the information, less the cost of obtaining the information.  If the additional information does not cause any change in the decision behavior then the value of the additional information is zero.  The value of the additional information making the existing information perfect (VPI) is:

 

VP1 = (V2  - V1)  -  (C2 – C1)

 

Where V is the value of the information and C is the cost of obtaining the information.  V1 and C1 relate to one set of information and V2, C2 relate to the new set. If the VP1 is very high, then it is beneficial to serve the additional information need.

 

A manager is faced with the problem of decision making under uncertainty or risk conditions, if he does not know the perfect information about the decision situation. Further, his ability to generate decision alternatives owing to the imperfect information of the situation, and also the expected events in the future is limited.  In other words, given a set of possible decisions, a decision maker will select one on the basis of the available information.  If the new information cause a change in the decision, then the value of the new information is the difference in the value between the outcome of the old decision and that of new decision, less the lost of obtaining the new information.

 

In MIS, the concept of the value of information is used to find out benefit of perfect information and if the value is significantly high, the system should provide it. If the value is in signification, it would not be worth collecting the additional information. The decisions at  the operational and the middle management level are such that the value of additional or new information is low, while at the higher levels of the management, the decision being mainly strategic and tactical in nature, the value of additional information is very high.