Find the expected value of perfect information

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Reference no: EM132133593

The NBS television network has to decide whether to air a show or not air a show. If the show is aired then the NBS television network earns an average of $400,000 from a hit show and loses an average of $100,000 on a flop. Of all shows reviewed by the network, 25% turn out to be hits and 75% turn out to be flops. For $40,000, a market research firm will have an audience view a pilot of a prospective show and give its view about whether the show will be a hit or a flop. If a show is actually going to be a hit, there is a 90% chance that the market research firm will predict the show to be a hit. If the show is actually going to be a flop, there is an 80% chance that the market research firm will predict the show to be a flop.

Determine how the network can maximize its expected profits (e.g. maximize its EP)

Find the Expected Value of Sample information (EVSI), which is the maximum amount that the network is willing to pay the market research firm.

Find the expected Value of Perfect Information (EVPI).

Reference no: EM132133593

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