Question

L. NUME O the above Icec a s102 Dorotaloob Santos 13. Given the following payoff (profit) table: STATE OF NATIRE LE S Site DL S2 A1 $400 $250 ALTERNATIVE -------- --- --- A2 $ 80 $650 PROBABILITY: 0.70 0.30 Based on these information, the Expected Value with Perfect Information (in $) is A. 280 B. 355 c. 475 D. Not enough information given to answer this question E. None of the above

Answer 1

EVPI (Expected value of perfect information) comes out to be $120.

Hence the answer is

E) None of the above

State of nature Expected Value(EV) Alternative A1 S1 400 80 0.7 400 A2 S2 250 650 0.3 650 400(0.7)+250(0.3)=355 80(0.7)+650(0.3)=251 Probabilty Optimal 400(0.7)+650(0.3)=475 Expected value of these optimal returns=355 EV of the optimal decision=475 Now for EVPI(Expected value of perfect information), EVPI=EV of the optimal decision- Expected value of these optimal returns EVPI=475-355=120 Please note that, The expected value (EV) of decision alternative di is defined as: EV(dj) = { PS, Wy j=1 where: N = the number of states of nature PISi ) = the probability of state of nature si Vij = the payoff corresponding to decision alternative di and state of nature si