The Value of Information - Assignment Example

The value of Information The difference between making decisions under perfect and imperfect information situation is that in a situation where there is perfect information the uncertainty in the situation is resolved while when there is imperfect information decision making is done with the uncertainty. In the book, a good decision guarantees the best result while in imperfect information a good decision chosen does not guarantee access to the best results; hence, there is a need for information to aid in making best decisions in a given situation (Samuelson and Stephen, 2012, 546).

Decision-making under uncertainty that is the case of imperfect information is always the case because of the inability to find perfect information in for decision-making. The ability to access perfect information for making decisions is impossible owing to impediments of costs and other factors including time that make it hard for a decision maker to find perfect information. Managers are mostly faced by situation where they have to make decisions instantly; hence, it is mostly the case that decision making under uncertainty is mostly the case for decision makers.

Imperfect information can largely be ignored in repetitive trials with small effects resulting from errors because the impacts are small, and the result from errors showing that the information could be the same were it not for the errors. The other reason for ignoring imperfect information is the inability of the information to have much impact on the probabilities or chances for making the correct decision; hence, they can largely be ignored. The need for the first-time success increases the demand for information as a measure of ensuring uncertainty is reduced in making the decision increasing the chances of making the correct decision.

Availability of information for decision-making increases the possibility of first-time success by ensuring the decision maker knows the odds between making the correct and wrong decision. To augment the chances of first-time success, the demand for information increases to ensure the ability of making correct decision increases. The demand for information increases in first-time success owing to lack of previous data and the high uncertainty associated with first-time success owing to no proven record of accomplishment for decision making.

In one-shot large potential loss situations, the information that is commonly available is the payoffs that the decision maker expects to get from a given decision from the highest to the lowest pay off accompanying any decision. The information that is commonly unknown concerning one-time large potential loss situations is the estimates of the probabilities or chances for the occurrence of certain situations. There is uncertainty on the chances of making certain payoffs from a given decision since it is a onetime event and the probabilities cannot be estimated since there have been no previous results from such decisions to base on in decision making.

The value of the information in a one-shot large potential loss situation is assessed through differentiating the profits or the value of the decision considering the availability information subtracting the value of the decision without the information. The reason for the assessment is that when there is information, the possibility of making the right decision resulting in better payoffs is increased compared to when there is no information to base in decision making. In conclusion, the value of information increases with the benefits it will accrue to a firm when the information is used and result in better payoffs for the firm subtracting the payoffs that result from making a decision without information.

Work CitedSamuelson, Williams and Stephen, Marks. Managerial Economics. Hoboken, NJ: John Wiley and Sons, 2012. Print.