The impact of testing errors on value of information: A quality-control example |
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Authors: | Anil Gaba Robert L Winkler |
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Institution: | 1. Boulevard de Constance, INSEAD, 77305, Fontainebleau Cedex, France 2. Fuqua School of Business, Duke University, 27708-0120, Durham, NC
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Abstract: | In this article, we extend recent work on the inferential impact of errors in data to a decision-making setting. In the context of a simple quality-control example, we illustrate how errors can cause substantial reductions in the value of information from a sample and how uncertainty about error rates can lead to yet further reductions in EVSI. Moreover, we extend the notion of an equivalent error-free sample size (which indicates the reduction in effective sample size due to errors) from an inferential framework to a decision-making framework and find that as uncertainty about error-rate parameters increases, reductions in effective sample size are even greater for a decision maker than the inferential measures suggest. |
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