Find the expected value of perfect information

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Reference no: EM131926305

Immigration Canada is trying to decide whether new immigrants from a particular country should be tested for a contagious disease that is endemic to that country.

Part of the decision rests on potential impacts to the Canadian economy. Each immigrant who is admitted to Canada and has the disease will cost the national health scheme $100,000.

Each healthy immigrant admitted will contribute $10,000 to the economy. Assume that 10% of all potential immigrants have the disease. The government can admit all immigrants, admit no immigrants or it can test immigrant applicants for the disease before making the admission decision.

It costs $100 to test a person for the disease and the test result is either positive or negative. A person who does not have the disease always tests negative. However, 20% of all people who do have the disease test negative. The government's goal is to maximize the net value to the economy.

a. Decide upon the best course of action using a decision tree to outline the decision problem. Explain the decision in non-technical language.

b. What is the expected monetary value of an immigrant given your plan? What is the expected value of the test (EVSI)?

c. What is the expected value of perfect information (EVPI)?

Reference no: EM131926305

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