Decision making using EMV and EVPI.
A concessionaire for the local ballpark has developed a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowed).
|
|
States of Nature
|
|
Alternative
|
Large($)
|
Average($)
|
Small($)
|
|
Large Inventory
|
22,000
|
12,000
|
-2,000
|
|
Average Inventory
|
15,000
|
12,000
|
6,000
|
|
Small Inventory
|
9,000
|
6,000
|
5,000
|
If the probabilities associated with the states of nature are 0.30 for a large crowed? 0.50 for an average crowed, and 0.20 for a small crowed, determine:
(a) the alternative that provides the greatest expected monetary value (EMV)
(b) the expected value of perfect information (EVPI).