Economic Theory

, Volume 9, Issue 2, pp 309–324 | Cite as

The rationality and efficacy of decisions under uncertainty and the value of an experiment

  • Stephen Morris
  • Hyun Song Shin
Research Articles

Summary

A decision maker faces a known prior distribution over payoff relevant states. We compare the expected utility of this individual under two scenarios. In the first, the decision maker makes a choice without further information. In the second, the decision maker has access to an experiment before choosing an action. However, the decision maker does not know the true joint distribution over states and messages. The value of the experiment as measured by the difference in the two utility levels can be negative as well as positive. We give a condition which is necessary and sufficient for the experiment to be valuable in our sense, for any decision problem.

JEL classification number

D81 

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Copyright information

© Springer-Verlag 1997

Authors and Affiliations

  • Stephen Morris
    • 1
  • Hyun Song Shin
    • 2
  1. 1.Department of EconomicsUniversity of PennsylvaniaPhiladelphiaUSA
  2. 2.Nuffield CollegeOxfordEngland

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