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Hi John, could you please assist me with this question. I wanted to know how the EV without perfect information was calculated. The following is the table for the question and we are asked to find the value of perfect information.
Supply Level
Demand Level Probability 450 650 775 960
$ $ $ $450 (0.15) 1170 980 810 740
620 (0.30) 1170 1612 1395 1290
775 (0.40) 1170 1612 2015 1785
960 (0.15) 1170 1612 2015 2496
I know how to calculate the EV with perfect information which is the $1839.50
The EV without perfect information is $1648.25 (at a supply level of 775 lunches). I don’t understand how this was calculated.
For each of the different supply levels we calculate the expected value, and then choose the highest of those expected values (which turns out to be the expected value when the supply is 775).
Have you not watched my free lectures on decision making under uncertainty?
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