Find the expected value of perfect information, Advanced Statistics

You may have the opportunity to buy some electronic components. These components may be reliable (1) or unreliable (2). The potential pro?ts are £10,000 if the components are reliable or -£5,000 if unreliable. So you may decide not to buy. You believe that the probability that the components are reliable is 0.8. What is the optimal decision in this case?

Find the expected value of perfect information (EVPI).

Suppose that you can obtain a batch of components from the ?rm. You have a test which you can perform on the batch of components, which the components either pass (X = 0) or fail (X = 1). The test gives accurate results 90% of the time.

What decision should you make now on the basis of the result of the test. What is the EVSI?

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