Impact of Information on Risk Attitudes: Implications on Valuation of Reliability and Information

Abstract

Risk attitudes are an important behavioural characteristic that influences people's valuation of information and reliability. In a transport context, information has become widely accessible to road users through ITS systems, GPS technology and the internet justifying the importance of understanding the valuation of information by travellers. There have been a number of studies that have looked at the value of information and the value of reliability for a road user. However, to date there has not been a study that explicitly evaluates the impact of having information within a choice set on an individual's risk attitudes, which ultimately affects their valuation for information and reliability. This study conducts a controlled laboratory experiment, using methods of experimental economics, to measure the risk attitudes of users with and without the presence of information in the choice set. A model derived from Expected Utility Theory is used to infer the risk attitudes of the participants. The results of the analysis indicate that the presence of information in the choice set reduces risk aversion, which causes a reduction in people's valuation of information and reliability. It is critical to systematically incorporate these differences into behaviour models, since neglecting this fundamental difference could result in erroneous policy decisions, with respect to overpricing information, or inappropriately allocating funds for information systems.