Question
The following table lists the profitability of four alternatives and states of nature that a manger...
The following table lists the profitability of four alternatives and states of nature that a manger faces.
| Alternative | S1 | S2 | S3 | S4 |
| D1 | 14 | 9 | 10 | 5 |
| D2 | 11 | 10 | 8 | 7 |
| D3 | 9 | 10 | 10 | 11 |
| D4 | 8 | 10 | 11 | 13 |
| Probability | 10% | 20% | 40% | 30% |
The EVPI is
Homework Answers
Answer #1
Probability |
10% | 20% | 40% | 30% | |
| Alternative | S1 | S2 | S3 | S4 | EMV |
| D1 | 14 | 9 | 10 | 5 | 14*0.1+9*0.2+10*0.4+5*0.3 = 8.7 |
| D2 | 11 | 10 | 8 | 7 | 11*0.1+10*0.2+8*0.4+7*0.3 = 8.4 |
| D3 | 9 | 10 | 10 | 11 | 9*0.1+10*0.2+10*0.4+11*0.3 = 10.2 |
| D4 | 8 | 10 | 11 | 13 | 8*0.1+10*0.2+11*0.4+13*0.3 = 11.1 |
In general, EVPI = EPPI - Max( EMV )
where EPPI = 
= 14 * 0.10 + 10 * 0.20 + 11 * 0.40 + 13 * 0.30
= 11.7
And EMV = 
Max (EMV) = 11.1
EVPI = 11.7 - 11.1 = 0.6
Hope this answers your query!
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