Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c }
\text { States } & A 1 & A 2 & A B \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3
-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected value of perfect information (EVPI)for the payoff table is _______.
A) -3
B) 8
C) 3
D) 11

Question

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
 $$\begin{array} { c c c c } 
\text { States } & A 1 & A 2 & A B \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3
-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected value of perfect information (EVPI)for the payoff table is  _______.
A) -3
B) 8
C) 3
D) 11

Quizplus · Accepted Answer

The Expected Value of Perfect Information (EVPI) is calculated by comparing the expected value with perfect information to the expected value without perfect information. First, calculate the expected value (EV) for each action without perfect information:- EV(A1) = 0.5 * 12 + 0.5 * 4 = 6 + 2 = 8- EV(A2) = 0.5 * (-2) + 0.5 * 10 = -1 + 5 = 4- EV(A3) = 0.5 * 8 + 0.5 * 5 = 4 + 2.5 = 6.5Without perfect information, the best action is A1 with an EV of 8.With perfect information, you would choose A1 in S1 and A2 in S2:- EV with perfect information = 0.5 * 12 + 0.5 * 10 = 6 + 5 = 11EVPI = EV with perfect information - EV without perfect information (best action)EVPI = 11 - 8 = 3

Instruction 17-3 the Following Payoff Table Shows Profits Associated with a Set

Instruction 17-3
the Following Payoff Table Shows Profits Associated with a Set