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What is the expected value of perfect information

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Question - An investor is to purchase one of three types of real estate.  The investor must decide among an apartment building, an office building, and a warehouse.  The future states of nature that will determine how much profit the investor will make are good economic conditions and poor economic conditions.  The profits that will result from each decision in the event of each state of nature are shown above.

Payoff Table

Good Economic

Conditions

Poor Economic

Conditions

Decision (Purchase)

50%

50%

Apartment building

$65,000

$30,000

Office building

100,000

-40,000

Warehouse

30,000

10,000

Which investment has the highest EMV?

What is the expected value of perfect information in this problem?

Reference no: EM131781684

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