Warren Buffy is an enormously wealthy investor who has built his fortune through his legendary busimen acumen. He currently has been offered three major investments and would like to choose one. The first one is a conservative investment that would perform well in an improving economy and only suffer a small loss in a worsening economy. The second is a speculative investment that would perform extremely well in an improving economy but would do very badly in a worsening economy. The third is a countercyclical investment that would lose some money in an improving economy but would perform well in a worsening economy. The respective payoffs (millions) and the associated probabilities as shown in the Table below. Decision alternatives Improving Stable Worsening Conservative 30.00 5.00 -8.00 Speculative 40.00 10.50 -30.00 Countercyclical -5.0 .00 15.0 probabilities .10 .50 .40 (o) What is the most that Warren should be willing to pay for additional information? Use Expected Regret (p) Use the alternative method to verify EVPI
Warren Buffy is an enormously wealthy investor who has built his fortune through his legendary busimen acumen.
He currently has been offered three major investments and would like to choose one. The first one is a conservative investment that would perform well in an improving economy and only suffer a small loss in a worsening economy. The second is a speculative investment that would perform extremely well in an improving economy but would do very badly in a worsening economy. The third is a countercyclical investment that would lose some money in an improving economy but would perform well in a worsening economy. The respective payoffs (millions) and the associated probabilities as shown in the Table below.
Decision
alternatives Improving Stable Worsening
Conservative 30.00 5.00 -8.00
Speculative 40.00 10.50 -30.00
Countercyclical -5.0 .00 15.0
probabilities .10 .50 .40
(o) What is the most that Warren should be willing to pay for additional information? Use Expected Regret
(p) Use the alternative method to verify EVPI
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