how much is that next piece of information worth?
i like the example that walter williams gives in one of his columns on racial profiling:
Since the acquisition of information is not costless, it requires the sacrifice of resources (time and/or money), we all seek methods to economize on its acquisition. Prior to making a decision, people never obtain all of the information available or possible to obtain. For example, all prefer low prices to higher prices for a given purchase, but we never canvass all prices. In choosing a mate, we never obtain all the information about our prospective spouse. In these and other decisions, we decide that a given amount of information is "enough" and we search no more.
Consider the following example of how much information is acquired prior to a decision. Suppose upon entering a room one is unexpectedly confronted with the sight of a fully grown tiger. A fairly reliable prediction is that person would endeavor to leave the area in great dispatch or otherwise seek safety. All by itself that prediction is uninteresting. More interesting is the explanation for the behavior. Would the person's decision to run be based upon any detailed information held about that particular or would the decision be based upon the person's information about how he has seen other tigers behave, what his parents have told him about tigers or tiger folklore? Most likely the individual's decision would be based upon the latter. He simply pre-judges or stereotypes the tiger. The fact that it is a tiger is deemed sufficient information for action.
If a person did not pre-judge or employ tiger stereotypes, his behavior would be different. He would endeavor to acquire additional information about the tiger before taking any action. Maybe he would speak to and pet the tiger in an effort to ascertain whether the tiger meant him harm or not. Only if the tiger became menacing or lunged at him would he seek safety.
Most people so confronted by a tiger would not seek additional information. They would quickly calculate that the expected cost of an additional unit of information about the tiger is greater than the expected benefit. Hence, no search would be undertaken; physical characteristics alone would be enough for action.
What can be said about the preferences of such an individual? There is no unambiguous answer. The decision to seek safety is consistent with the person having positive, negative or neutral preferences regarding tigers. In general, simply by watching people's behavior allows us to say nothing unambiguous about their preferences.
the column is kind of old, but i think the guy is right on the money on almost everything he writes about
http://www.gmu.edu/departments/economics/w...profiliing.html