What is the expected value of perfect information of the following decision table? States of Nature
$$\begin{array} { | c | c | c | }
\hline \text { Alternatives } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } \
\hline \mathrm { p } & .6 & .4 \
\hline \text { Option } 1 & 200 & 300 \
\hline \text { Option } 2 & 50 & 350 \
\hline
\end{array}$$
A) 0
B) 20
C) 50
D) 150
E) 200

Question

What is the expected value of perfect information of the following decision table? States of Nature
$$\begin{array} { | c | c | c | } 
\hline \text { Alternatives } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } \
\hline \mathrm { p } & .6 & .4 \
\hline \text { Option } 1 & 200 & 300 \
\hline \text { Option } 2 & 50 & 350 \
\hline
\end{array}$$
A) 0
B) 20
C) 50
D) 150
E) 200

Quizplus · Accepted Answer

The expected value of perfect information (EVPI) is calculated by first finding the expected value of each option, then finding the expected value with perfect information, and finally subtracting the maximum expected value of the options from the expected value with perfect information. For Option 1: EV = 0.6(200) + 0.4(300) = 120 + 120 = 240. For Option 2: EV = 0.6(50) + 0.4(350) = 30 + 140 = 170. Without perfect information, the best option is Option 1 with an EV of 240. With perfect information, the EV is 0.6(200) + 0.4(350) = 120 + 140 = 260. EVPI = 260 - 240 = 20.

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