The expected value of perfect information is:
A)12
B)55
C)57
D)69
E)90

Question

The expected value of perfect information is:
A)12 
B)55 
C)57 
D)69 
E)90

Quizplus · Accepted Answer

The expected value of perfect information is equal to the expected value under certainty minus the expected value with imperfect information. In this case, if we choose option A, we have a 50% chance of getting 10 and a 50% chance of getting 14, so the expected value is 12. If we have perfect information and know whether we will get 10 or 14, we can choose accordingly and have an expected value of 14. Therefore, the expected value of perfect information is 14-12=2. For all other options, the expected value under certainty and the expected value with imperfect information are the same, so the expected value of perfect information is 0. Therefore, the best choice is A.

The Expected Value of Perfect Information Is