Question & Answer: Consider the following payoff table. How much should be pConsider the following payoff table. How much should be paid for a perfect forecast of the State of aid for a perfect forecast of the State of nature?…

Consider the following payoff table. How much should be paid for a perfect forecast of the State of nature?

Expert Answer

A B EMV
Alternative 1 100 150 130
Alternative 2 200 100 140
Probability 0.4 0.6

Max(EMV) = 140

EVPI = Expected Value with Perfect Information – max(EMV) = (200*0.4 + 150*0.6) – 140 = 30

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