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Expected value of perfect information

The local operations manager for the IRS must decide whether to hire 1, 2, or 3 temporary workers. He estimates that net revenues will vary with how well taxpayers comply with the new tax code.

low medium high
# of workers compliance compliance compliance
1 50 50 50
2 100 60 20
3 150 70 -10

If he thinks the chances of low, medium, and high compliance are 20%, 30%, and 50%, respectively, what is his expected value of perfect information?

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The local operations manager for the IRS must decide whether to hire 1, 2, or 3 temporary workers. He estimates that net revenues will vary with how well taxpayers comply with the new tax code.

low medium high
# of workers compliance ...

Solution Summary

The solution calculates the expected value of perfect information.

$2.19