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

Vector function - three dimensional spaces, Vector Function The good wa...

Vector Function The good way to get an idea of what a vector function is and what its graph act like is to look at an instance.  Thus, consider the following vector function.

Mathematics is all around us-mathematics- in our lives, Mathematics Is All ...

Mathematics Is All Around Us :  What is the first thing you do when you get up? Make yourself a nice cup of tea or coffee? If so, then you're using mathematics! Do you agree? Cons

Properties of dot product - vector, Properties of Dot Product u → • (v...

Properties of Dot Product u → • (v → + w → ) = u → • v → + u → • w →          (cv → ) • w → = v → •(cw → ) = c (v → •w → ) v → • w → = w → • v →

Fenrir chain, Fenrir the wolf is bound by a magical chain. The chain is an ...

Fenrir the wolf is bound by a magical chain. The chain is an endless piece madr up of 30 links.Originally forged by 6 pieces , each made up of 5 links. It costs 2 silver coins to c

Show trigonometric functions on a graph, Q. Show Trigonometric Functions on...

Q. Show Trigonometric Functions on a Graph? Ans. By discussing the trig functions with respect to an angle in a right-angle triangle, we have only considered angles betwee

Probability., an insurance salesman sells policies to 5 men, all of identic...

an insurance salesman sells policies to 5 men, all of identical age in good health. the probability that a man of this particular age will be alive 30 years hence is 2/3.Find the p

How much can they deduct from childcare expenses, A family may deduct 24% o...

A family may deduct 24% of their childcare expenses from their income tax owed. If a family had $1,345 in childcare expenses, how much can they deduct? Find out 24% of $1,345 b

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