Lab 2 AP Austin Peay State University CLARKSVILLE TENNESSEE College of Business MGT 5055 Expected Value & Perfect Information Learning Material: Please watch this video. Scenario: A tech startup is considering launching a new product. They can either invest heavily in a full-feature version of the product (High Investment), invest moderately in a basic version (Medium Investment), or decide not to invest at all (No Investment). The market's response to the new product is uncertain. The market could have a Strong response, a Moderate response, or a Weak response. The startup has conducted a preliminary survey, which gives probabilities for each market response. Data (Payoff Table in USD): Decision High Investment Medium Investment No Investment Strong Response Moderate Response Weak Response 1,500,000 400,000 -700,000 700,000 500,000 -200,000 10 0 0 Market Response Probabilities: • Strong Response: 0.3 Moderate Response: 0.5 • Weak Response: 0.2 Assignment Steps: 1. Expected Monetary Value (EMV): For each decision (High, Medium, No Investment), compute the EMV: EMV = (Payoff of Strong Response × Probability of Strong Response) + (Payoff of Moderate Response × Probability of Moderate Response) + (Payoff of Weak Response x Probability of Weak Response) First Question What is the highest EMV? (5 points) Second Question What is the recommended action? (5 points) 2. Expected Value of Perfect Information (EVPI): Calculate the Expected Value with Perfect Information (EVWPI), which is the weighted sum of the best outcomes for each state of nature (market response). Lab 2 AP Austin Peay State University CLARKSVILLE TENNESSEE College of Business MGT 5055 EVPI = EVWPI - EVwOPI (Expected Value without Perfect Information, i.e., the highest EMV from step 1) Third Question What is the Expected Value of Perfect Information (EVPI)? (5 points)
Lab 2 AP Austin Peay State University CLARKSVILLE TENNESSEE College of Business MGT 5055 Expected Value & Perfect Information Learning Material: Please watch this video. Scenario: A tech startup is considering launching a new product. They can either invest heavily in a full-feature version of the product (High Investment), invest moderately in a basic version (Medium Investment), or decide not to invest at all (No Investment). The market's response to the new product is uncertain. The market could have a Strong response, a Moderate response, or a Weak response. The startup has conducted a preliminary survey, which gives probabilities for each market response. Data (Payoff Table in USD): Decision High Investment Medium Investment No Investment Strong Response Moderate Response Weak Response 1,500,000 400,000 -700,000 700,000 500,000 -200,000 10 0 0 Market Response Probabilities: • Strong Response: 0.3 Moderate Response: 0.5 • Weak Response: 0.2 Assignment Steps: 1. Expected Monetary Value (EMV): For each decision (High, Medium, No Investment), compute the EMV: EMV = (Payoff of Strong Response × Probability of Strong Response) + (Payoff of Moderate Response × Probability of Moderate Response) + (Payoff of Weak Response x Probability of Weak Response) First Question What is the highest EMV? (5 points) Second Question What is the recommended action? (5 points) 2. Expected Value of Perfect Information (EVPI): Calculate the Expected Value with Perfect Information (EVWPI), which is the weighted sum of the best outcomes for each state of nature (market response). Lab 2 AP Austin Peay State University CLARKSVILLE TENNESSEE College of Business MGT 5055 EVPI = EVWPI - EVwOPI (Expected Value without Perfect Information, i.e., the highest EMV from step 1) Third Question What is the Expected Value of Perfect Information (EVPI)? (5 points)
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
Related questions
Question
Transcribed Image Text:Lab 2
AP Austin Peay
State University
CLARKSVILLE TENNESSEE
College of Business
MGT 5055
Expected Value & Perfect Information
Learning Material: Please watch this video.
Scenario:
A tech startup is considering launching a new product. They can either invest heavily in a full-feature
version of the product (High Investment), invest moderately in a basic version (Medium Investment), or
decide not to invest at all (No Investment).
The market's response to the new product is uncertain. The market could have a Strong response, a
Moderate response, or a Weak response. The startup has conducted a preliminary survey, which gives
probabilities for each market response.
Data (Payoff Table in USD):
Decision
High Investment
Medium Investment
No Investment
Strong Response
Moderate Response
Weak Response
1,500,000
400,000
-700,000
700,000
500,000
-200,000
10
0
0
Market Response Probabilities:
•
Strong Response: 0.3
Moderate Response: 0.5
•
Weak Response: 0.2
Assignment Steps:
1. Expected Monetary Value (EMV):
For each decision (High, Medium, No Investment), compute the EMV: EMV = (Payoff of Strong
Response × Probability of Strong Response) + (Payoff of Moderate Response × Probability of
Moderate Response) + (Payoff of Weak Response x Probability of Weak Response)
First Question What is the highest EMV? (5 points)
Second Question
What is the recommended action? (5 points)
2. Expected Value of Perfect Information (EVPI):
Calculate the Expected Value with Perfect Information (EVWPI), which is the weighted sum of
the best outcomes for each state of nature (market response).
Transcribed Image Text:Lab 2
AP Austin Peay
State University
CLARKSVILLE TENNESSEE
College of Business
MGT 5055
EVPI = EVWPI - EVwOPI (Expected Value without Perfect Information, i.e., the highest EMV from
step 1)
Third Question What is the Expected Value of Perfect Information (EVPI)? (5 points)
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