Value of information (VOI or VoI) is the amount a decision maker would be willing to pay for information prior to making a decision.
Similar terms
VoI is sometimes distinguished into value of perfect information, also called value of clairvoyance (VoC), and value of imperfect information. They are closely related to the widely known expected value of perfect information (EVPI) and expected value of sample information (EVSI). Note that VoI is not necessarily equal to "value of decision situation with perfect information" - "value of current decision situation" as commonly understood.
Definitions
Simple
A simple example best illustrates the concept: Consider the decision situation with one decision, for example deciding on a 'Vacation Activity'; and one uncertainty, for example what will the 'Weather Condition' be? But we will only know the 'Weather Condition' after we have decided and begun the 'Vacation Activity'. The Value of perfect information on Weather Condition captures the value of being able to know Weather Condition even before making the Vacation Activity decision. It is quantified as the highest price the decision-maker is willing to pay for being able to know Weather Condition before making the Vacation Activity decision. The Value of imperfect information on Weather Condition, however, captures the value of being able to know the outcome of another related uncertainty, e.g., Weather Forecast, instead of Weather Condition itself before making Vacation Activity decision. It is quantified as the highest price the decision-maker is willing to pay for being able to know Weather Forecast before making Vacation Activity decision. Note that it is essentially the value of perfect information on Weather Forecast.
Formal
The above definition illustrates that the value of imperfect information of any uncertainty can always be framed as the value of perfect information, i.e., VoC, of another uncertainty, hence only the term VoC will be used onwards.
Standard
Consider a general decision situation having n decisions (d1, d2, d3, ..., dn) and m uncertainties (u1, u2, u3, ..., um). Rationality assumption in standard individual decision-making philosophy states that what is made or known are not forgotten, i.e., the decision-maker has perfect recall. This assumption translates into the existence of a linear ordering of these decisions and uncertainties such that;
di is made prior to making dj if and only if di comes before dj in the ordering
di is made prior to knowing uj if and only if di comes before uj in the ordering
di is made after knowing uj if and only if di comes after uj in the ordering
Consider cases where the decision-maker is enabled to know the outcome of some additional uncertainties earlier in his/her decision situation, i.e., some ui are moved to appear earlier in the ordering. In such case, VoC is quantified as the highest price which the decision-maker is willing to pay for all those moves.
Generalized
The standard then is further generalized in team decision analysis framework where there is typically incomplete sharing of information among team members under the same decision situation. In such case, what is made or known might not be known in later decisions belonging to different team members, i.e., there might not exist linear ordering of decisions and uncertainties satisfying perfect recall assumption. VoC thus captures the value of being able to know "not only additional uncertainties but also additional decisions already made by other team members" before making some other decisions in the team decision situation.
Characteristics
There are four characteristics of VoI that always hold for any decision situation:
The value of information can never be less than zero since the decision-maker can always ignore the additional information and make a decision as if such information is not available. No other information gathering/sharing activities can be more valuable than that quantified by value of clairvoyance. Observing multiple new evidences yields the same gain in maximum expected utility regardless of the order of observation. The VOI of observing two new evidence variables is not additive. Instead it is equivalent to observing one, incorporating it into our current evidence, then observing the other.
Computation
VoC is derived strictly following its definition as the monetary amount that is big enough to just offset the additional benefit of getting more information. In other words; VoC is calculated iteratively until
"value of decision situation with perfect information while paying VoC" = "value of current decision situation".