9781118041581

578 Chapter 13 The Value of Information

Suggested References

Borison, A., and G. Hamm. “How to Manage Risk (after Risk Management Has Failed).” Sloan

Management Review(Fall 2010): 51–57.

Camerer, C. “Individual Decision Making.” In J. H. Kagel and A. E. Roth (Eds.), The Handbook of

Experimental Economics.Princeton, NJ: Princeton University Press, 1995.

Clemin, R. T., and T. Reilly. Making Hard Decisions with Decision Tools Suite Update. Belmont, CA:

Thomson Learning, 2003.

Howard, R. A., J. E. Matheson, and D. W. North. “The Decision to Seed Hurricanes.” Science, June

16, 1972, pp. 1191–1202. This article is a classic application concerning the value of information.

Kahneman, D., P. Slovic, and A. Tversky. Judgment under Uncertainty: Heuristics and Biases.Cam-

bridge: Cambridge University Press, 1982. This volume contains many classic articles on the pitfalls of

intuitive probability assessments.

AB C D E F G HI J K

1

2 EVALUATING FUND MANAGERS

3

4 Possible Annual Returns

525 or 15

6

7 Fund Manager Types

8 Superior Average Inferior

9 Prob(Up) 0.7 0.6 0.5

10 Exp Return 13 9 5

11

12 Likelihood

13 Track Record Superior Average Inferior

14 Years Ups

15 20 15 0.179 0.075 0.015

16

17 Joint Probability

18 Track Record Superior Average Inferior

19 Years Ups Total

20 20 15 0.036???

21 Expected

22 Prior Prob 0.2 0.6 0.2 Return

23

24 Revised Prob??? 1.000?

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