d) What is the expected value of sample information (EVSI)- the most that the survey values? e) Calculate the expected value of perfect information (EVPI)- the most that should be paid to an expert for perfect prediction of the uncertain outcomes. f) What is the efficiency of sample information?
Please answer d, e and f.
Question four
Bakery Products is considering the introduction of a new line of products. In order to produce the new line, the bakery is considering either a major or minor renovation of the current plant. Bakery Products has the option of not developing the new line at all. The decision alternatives are shown in the payoff table below as well as the states of nature and probabilities. Payoffs are profits;
Before making the final decision, Bakery Products can pay a market research firm $500.00 to survey consumer attitudes towards the company's products. The results can be either “vibrant” or “limp”. The reliability of the company, based on past performance, is given below.
That is: P(V|F) = 0.80;P(V|N) = 0.60;P(V|U) = 0.30; P(L|F) = 0.20;P(L|N) = 0.40;P(L|U) = 0.70;
a) Compute the revised probabilities round to two decimal places.
b) After you have computed the revised probabilities round to two decimal places, construct the appropriate decision tree to help Bakery products make the appropriate decisions. This tree must be constructed in logical order with labels and net payoffs. It also includes the revised probabilities.
c) Fold back the decision tree to determine the best strategy for the bakery; you must state this strategy. What is the final expected profit?
d) What is the expected value of sample information (EVSI)- the most that the survey values?
e) Calculate the expected value of perfect information (EVPI)- the most that should be paid to an expert for perfect prediction of the uncertain outcomes.
f) What is the efficiency of sample information?
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