How the value of information received by decision maker, Financial Accounting

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How the value of information received by decision maker

How the value of information received by decision maker eventually begins to decline. This is, maybe, since additional information becomes less relevant, or due to the problems that a decision maker may have in processing the sheer quantity of information provided. Costs of providing the information, though, will increase with every extra piece of information. Broken line indicates the point at which the gap between value of information and the cost of providing that information is at its greatest. This signifies the optimal amount of information which can be provided. This theoretical model, though, poses a number of problems in practice. We will now go on to discuss these. To explain the practical problems of establishing value of information, let's assume that someone has collided with our car in a car park and dented and scraped the paint from one of the doors. We wish to have dent taken out and door resprayed at a local garage. We know that nearest garage would charge £250 however believe that other local garages may offer to do the job for a lower price.  Only way of finding out the prices at other garages is to visit them, so that they can see extent of the damage. Visiting the garages will include using some petrol and will take up some of our time. Is it worth the cost of finding out the price for job at the different local garages? The answer, as we have seen, is that if cost of discovering the price is less than potential benefit, it's worth having that information.


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