Expected values for Perfect Information.ppt

Expected values for Perfect Information Website for information is as follows: /wiki/Expected_value_of_perfect_information We will now use our classroom example to compute based on the above note next. Formulae EVPI = A – B A = expected value with perfect information B = expected value without perfect information example Consider our lecture example: Calculation of A value A = the best of each outcome x their prob. The best of outcomes: Calculation of B value B = we select the max value of each given below Outcome of each event EVPI EVPI = A – B = 72,000 – 44,000 = 28,000 More examples! You can refer to the website provided for more example. We show these steps next: These steps also applied and worked for all examples shown in the tut as well. Good luck! * Best outcome = 100,000 30,000 A = 0.6 x 100,000 + 0.4 x 30,000 = 72,000 The max value for all computed value = 44,000 0.6(50000) + 0.4 (30,000) = 42,000 0.6(100,000 -0.4(40,000) = 44,000 0.6(30,000) + 0.4(10,000) = 20,000 500 500 500 Option 3 -200 600 900 Option 2 -800 300 1,500 Option 1 20% decrease 0.3 for equal 0.5 for increase EVPI = A – B A = expected value with perfect information B = expected value without perfect information For A: The optimal values for each value are: 500 500 500 Option 3 -200 600 900 Option 2 -800 300 1,500 Option 1 20% decrease 0.3 for equal 0.5 for increase Max value : 1,500 600 500 Thus A = 0.5 x 1,500 + 0.3 x 600 + 0.2 x 500 = 1030 Consider: For B: we compute the expected values for each column first, and then select the max as below: 0.5x500+0.3x500+0.2x500 = 500 500 500 500 Option 3 0.5x900+0.3x600+0.2x(-200) = 590 -200 600 900 Option 2 0.5x1,500+0.3x300+0.2x(-800) = 680 -800 300 1,500 Option 1 Max value 20% decrease 0.3 for equal 0.5 for increase Thus B = max of all max value of above = 680 EVPI = A – B = 1030 – 680 = 350 * * *