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Dear Sir,
Hope you are well.
I have question in relation with topic “Value of Imperfect Information” in text book Performance Management – BPP 2016. In page 205 – solution b relating to “weak” and “strong” economy, I cannot understand how to figure out the probabilities for each condition after obtaining the research information.
As my understanding, the research states that:
– if results is weak => 80% correct, subsequently option A is chosen, therefore we can work the EV = 0.8×50000 + 0.2×60000 = $52000.– If result of research states economy is strong=> 90% correct => choose option B. I worked out the EV is $92000
How do I calculate the EV of profit in imperfect Information in this case when there is no probability of “weak” and “strong” result of research? If I use the probability 0.4 for “strong” and 0.6 for “weak” economy from estimated figures at begining of example, the result is unmatch with the answer.
Thank you in advance,
Dear Mr. John,
I managed to understand now, it was my confusion in Prior probabilities and Posterior Probabilities. Please ignore my question. I love your free lectures and highly appreciate.
Thank you
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