The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty

CHAPTER 15

The Value of Information

BECAUSE THERE ISN’T ANYTHING ELSE

 

 

Several years ago I gave a workshop for about 50 government intelligence analysts. Before beginning, I asked whether any of them were working specific problems. One of the analysts raised his hand and said that he was exploring ways to optimize the allocation of resources used to gather information. Because information was their primary product, this seemed like a central issue. I asked how many in the audience had heard of decision trees, and all the hands went up. I then asked how many had heard of the value of information and was surprised to count only about five. The analyst who had brought the subject up made an important observation that will be born out in the following discussion: Information has no value at all unless it has the potential to change a decision.

The Complement of Uncertainty

Information is the complement of uncertainty, that is, for every uncertainty, there is information that would reduce or remove it. Sometimes such information is cheap, and sometimes it is unavailable at any price. My father put it this way in his book: “One must indeed look before he leaps, in so far as looking is not unreasonably time-consuming and otherwise expensive.”

The Information Age is devoted to supplying information, but what defines whether the information is unreasonably expensive? The answer is the economic worth, or the value, of the information.

Severn Darden, the great comedian and original ...