Value of perfect information, Mathematics

Assignment Help:

Value of perfect information

This relates to the amount that we would pay for an item of information such would enable us to forecast the exact conditions of the market and act accordingly.

The EVPI or expected value of perfect information is the expected outcome along with perfect information minus the expected outcome with no perfect information namely the maximum EMV

Illustration

From above table and described that the probabilities are Boom 0.6, steady state 0.3 and recession 0.1 then

When situations of the market are; boom launch product C: profit = 16

When situations of the market are; steady state launch product B: profit = 6

When situations of the market are; recession launch product B: profit = 12

The expected profit along with perfect information will be

(16 x 0.6) + (6 x 0.3)  + (12 x 0.1) = 12.6

Our expected profit choosing product C is 7

The maximum price that we would pay for perfect information is 12.6 - 7 = 5.6

 


Related Discussions:- Value of perfect information

Management, An investment manager at TD Ameritrade is making a decision abo...

An investment manager at TD Ameritrade is making a decision about a $10,000,000 investment. There are four portfolio options available and she is looking at annual return of these

Determine the circumference, If Gretta's bicycle has a 25-inch radius wheel...

If Gretta's bicycle has a 25-inch radius wheel, how far will she travel in two turns of the wheel? (π = 3.14) a. 491 in b. 78.5 in c. 100 in d. 157 in d. To determin

difference between two sample means (large sample), Testing The Difference...

Testing The Difference Between Two Sample Means (Large Samples) A large sample is defined as one which have 30 or more items as n≥30 whereas n is the sample size In a busine

What are the characteristics of a queuing system, What are the characterist...

What are the characteristics of a queuing system?  (i) The input pattern  (ii) The queue discipline  (iii) The service mechanism

Differentiate y = x x using implicit differentiation, Differentiate y = x ...

Differentiate y = x x Solution : We've illustrated two functions similar to this at this point. d ( x n ) /dx = nx n -1                                 d (a x ) /dx= a

Problems involving motion - word problems, Problems Involving Motion - Word...

Problems Involving Motion - Word Problems: How far can a car travelling at a rate of 52 miles per hour travel in 2½ hours? Solution: Using Equation 13: s = vavt

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd