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Optimal Decision and Expected Value of Perfect Information

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Problem 4
In the following profit payoff table for a decision problem with two states of nature and three decision alternatives, the probabilities for s1 and s2 are: p(s1)=0.8 and p (s2)= 0.2

S=State of Nature
D=Decision alternatives
S1 S2
d1 15 10
d2 10 12
d3 8 20

a. What is the optimal decision?
b. Find the EVPI (expected value of perfect information)

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Solution Preview

Problem 4
In the following profit payoff table for a decision problem with two states of nature and three decision alternatives, the probabilities for s1 and s2 are: p(s1)=0.8 and ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the optimal decision and calculate the EVPI.

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