The Value of Information Given Decision Flexibility

This paper explores the effect of decision flexibility on the value of information. The usefulness of calculating the value of information under various assumptions concerning decision flexibility is illustrated with a simple economic example. An upper limit to the value of information given some level of flexibility is the expected value of perfect information given undiminished flexibility (EVPIGUF). By approximating an arbitrary smooth value function with a quadratic equation, first order characteristics of the EVPIGUF are identified. Finally, it is shown that sensitivity analysis can be used as a basis for obtaining simplified approximations for EVPIGUF's.