Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r }
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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 EVPI is calculated as the difference between the expected value with perfect information and the expected value without perfect information. The expected value with perfect information is the maximum profit for each state weighted by their probabilities: (0.5 * 12) + (0.5 * 10) = 11. The expected value without perfect information is the maximum expected value of the actions: max((0.5 * 12) + (0.5 * 4), (0.5 * -2) + (0.5 * 10), (0.5 * 8) + (0.5 * 5)) = 8. Therefore, EVPI = 11 - 8 = 3.

Instruction 17-2 the Following Payoff Table Shows Profits Associated with a Set

Instruction 17-2
the Following Payoff Table Shows Profits Associated with a Set