Below you are given a payoff table involving two states of n

Below you are given a payoff table involving two states of nature and four decision alternatives.

                    States of Nature

Decision           s1            s2

A                        5             8

B                       10           12

C                        20           6

D                         20           2

The probability of occurrence of s1 = 0.2.

The expected value of perfect information is

Solution

Best outcome = 0.2*20 + 0.8*12 = 13.6

out come of each event : 0.2*5 +0.8*8 =7.4

0.2*10+0.8*12=11.6

0.2*20 +0.8*6 = 8.8

0.2*20+0.8*2 =5.6

the maximum out come = 11.6

Expected Value of Perfect Information is EVPI = 13.6-11.6 = 2