How much is information worth? Willingness to pay for expert and non-expert informational goods compared to material goods in lay economic thinking

Abstract

Economists consider information a paradoxical good of uncertain value. This experimental study compares the valuation of economic information to the valuation of material goods when subjects possess perfect information so that uncertainty about the outcome of the transaction is eliminated. It also aims to study the participants' justifications of their valuations, in order to examine the underlying cognitive processes. The main hypotheses were that: (a) even if subjects deal with perfect information they will underestimate its value compared to the value of material goods; (b) underestimation of the value of information will be greater in conditions of high involvement, that is when expected payoff and therefore investment and risk are high; and (c) expert information will be valued more highly than non-expert information, since it should be regarded as more reliable. In the main study, two groups of students in the same university were asked to value and justify their valuation of material goods, under conditions of certain low (1000) and high (100,000) payoffs, respectively. Two other groups were asked to value and to justify their valuation of non-expert information under the same conditions of profit. Finally, two more groups of students were asked to value and justify their valuation of expert information, again under conditions of low or high expected profit. The findings of the study show that under all conditions subjects underestimate the value of information both absolutely and relatively in comparison to material goods, especially under conditions of high involvement. The participants' justifications of their own valuations are heuristics which seem to take into account the uncertain character of informational goods.