Expected values for Perfect

Information
Website for information is as
follows:
http://en.wikipedia.org/wiki/Expected_valu
e_of_perfect_information

We will now use our classroom example to
compute based on the above note next.
Formulae
EVPI = A B

A = expected value with perfect
information

B = expected value without perfect
information
example
Consider our lecture example:


Calculation of A value
A = the best of each outcome x their prob.

The best of outcomes:


Best outcome = 100,000 30,000

A = 0.6 x 100,000 + 0.4 x 30,000 = 72,000
Calculation of B value
B = we select the max value of each given below

Outcome of each event


The max value for all computed value = 44,000
0.6(50000) + 0.4 (30,000) = 42,000
0.6(100,000 -0.4(40,000) = 44,000
0.6(30,000) + 0.4(10,000) = 20,000
EVPI
EVPI = A B
= 72,000 44,000
= 28,000
More examples!
You can refer to the website provided for
more example.

We show these steps next:


0.5 for increase 0.3 for equal 20% decrease
Option 1 1,500 300 -800
Option 2 900 600 -200
Option 3 500 500 500
EVPI = A B
A = expected value with perfect information
B = expected value without perfect information
For A: The optimal values for each value are:

0.5 for increase 0.3 for equal 20% decrease
Option 1 1,500 300 -800
Option 2 900 600 -200
Option 3 500 500 500
Max value : 1,500 600 500
Thus A = 0.5 x 1,500 + 0.3 x 600 + 0.2 x 500 = 1030
Consider:
For B: we compute the expected values for each column first, and then select the max as below:

0.5 for increase 0.3 for equal 20% decrease Max value
Option 1 1,500 300 -800 0.5x1,500+0.3
x300+0.2x(-
800) = 680
Option 2 900 600 -200 0.5x900+0.3x6
00+0.2x(-200)
= 590
Option 3 500 500 500 0.5x500+0.3x5
00+0.2x500 =
500
Thus B = max of all max value of above = 680


EVPI = A B = 1030 680 = 350

These steps also applied and worked for
all examples shown in the tut as well.


Good luck!