If she feels that there is a 60% chance that the new cable network will be successful, what is her expected value (per thousand "hits") of perfect information?
A)$3.40
B)$4.60
C)$8.00
D)$9.00
E)$10.00

Question

Quizplus · Accepted Answer

Explanation:The expected value of perfect information is the difference between the expected value with perfect information and the expected value without perfect information. The expected value with perfect information is the sum of the expected values of the two possible outcomes, weighted by their probabilities. The expected value without perfect information is the average of the two possible outcomes. In this case, the expected value with perfect information is (0.6 * $10) + (0.4 * $0) = $6. The expected value without perfect information is ($10 + $0) / 2 = $5. Therefore, the expected value of perfect information is $6 - $5 = $1. Per thousand "hits", the expected value of perfect information is $1 * 1000 = $1000.

If She Feels That There Is a 60% Chance That