Weather Information and Economic Decisions

A Preliminary Report

by Richard R. Nelson, Sidney G. Winter

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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.

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