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Hi John, Please can you help in understanding the answer here for the below question.
Sandrunner gold club is setting its annual membership fee, which will affect the number of members. The forecast annual cans inflows from membership fees are shown below.
Membership Fees
Membership Fee Low Average High
$000 $000 $000
$300 180 210 270
$400 200 220 240
$450 180 205 245
$500 160 190 210The committee has now decided to set the fee at $300 or $400 for the next year. For both outcomes the probabilities are low 0.5 Average 0.3 High 0.2. A golf club member who is a marketing consultant has offered to carry out a survey of possible members to determine with certainty what the outcome will be.
Calculate the maximum amount the the marketing consultant should be paid for his work.?
Now I have correctly calculated the EV which is for the membership fee of $400, but I can’t understand the calculation of perfect information value in this particular question.
Thanks for your help in advance
Perfect information will tell them in advance what the outcome will be.
If the outcome is low then they would set the fee at 400 and get inflow of $200. If the outcome is average they will sent the fee at 400 and get inflow of $220. If the outcome is high they will set the fee at 300 and get inflow of 270.
So with the perfect information the expected inflow is (0.5 x 200) + (0.3 x 200) + (0.2 x 270)
The most to pay for the information is the difference between this expected value and the expected value without the information.
Have you watched my free lectures on this?
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