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Expected Value of Perfect Information

A business owner is trying to decide whether to buy, rent, or lease office space and has constructed the following payoff table based on whether business is brisk or slow.
Alternative Brisk Slow
Buy 90 -10
Rent 70 40
Lease 60 55

If the probability of brisk business is .40 and for slow business is .60, determine the expected value of perfect information is:

a) 12
b) 55
c) 57
d) 69

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A business owner is trying to decide whether to buy, rent, or lease office space and has constructed the following payoff table based on whether business is brisk or slow. ...

Solution Summary

The solution calculates expected value of perfect information.

$2.19