This study examines ways in which weather information enters into economic decisions. It develops methods for determining the dollar value of information varying in quality from climatological probability to the "perfect" forecast, and it illustrates how these methods can be applied to a number of typical business decisions. Methods are discussed for maximizing the economic value of forecasts, in both simple and sequential decisions. The result suggests that even without improvements in forecasting skill, there are opportunities to increase the value of forecasts by improving the form in which the forecaster communicates his inferences to the user.
This report is part of the RAND Corporation Research memorandum series. The Research Memorandum was a product of the RAND Corporation from 1948 to 1973 that represented working papers meant to report current results of RAND research to appropriate audiences.
Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.