Value Of Information Practice Problem

1) Calculate the EVPI for' the decision shown in below figure.

0.1
A 20
0.2
10
0.6
5
B 0.1
0
6

EMV of Original Tree = 20(.1) + 10(.2) + 5(.6) + 0(.1) = 7

A
0.1 20
B
6
A
0.2 10

B
0.6 6
A
5
B
6

A
0
0.1
B
6

EMV of New Tree = 20(.1) + 10(.2) + 6(.6) + 6(.1) = 8.2

EVPI = 8.2 – 7 = 1.2
2. Calculate the EVPI for' the decision shown in below figure.

EMV of original Tree = ($400,000)(0.5)+($100,000)(0.3)+(-$200,000)(0.2) = $190,000

EMV of new Tree = ($400,000)(0.5)+($100,000)(0.3)+(0)(0.2) = $230,000

EVPI = $230,000 – $190,000 = $40,000
Problem 3
Find the expected value of Perfect information for chance nodes E and F.

0.1
E 20
A 0.2
10
0.6
0
0.1
B 0.7 -10
5

-1
F 0.3

EMV A =20(.1) +10(.2) +0(.6)-10(.1) = 3

EMV B =5(.7) -1(.3) = 3.2
EMV of Tree = 3.2
EMV E and F =6.42
EVPI (Information about E and F) = EMV (Info)-EMV (B) = 6.42-3.2 = 3.22