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The following statements have been made about expected values:
1 Expected value is of limited use for decisions regarding outcomes which will be repeated often
2 Using expected value in decision making can lead to the worst possible outcome being ignored
3 The reliability of expected value calculations is heavily influenced by the accuracy of the
probabilities assigned to outcomesWhich of the statements are correct?
A.1, 2 and 3
B.1 and 2 only
C.1 and 3 only
D.2 and 3 only
The correct answer is D.Tutorial note: Expected value is most useful for decisions that are repeated often since the expected value is an average that would be expected if a decision were to be repeated many times, so statement (1) is incorrect.
why statement 2 is correct? isnt the answer suppose to be 3 only?
Statement 2 is true because using expected value in decision making can sometimes lead to the worst possible outcome being ignored. This is because expected value focuses on the average outcome and may not fully consider the potential risks or extreme outcomes.
Hi Sir,
I am little bit confused between the value of perfect information and value of imperfect information.
Value of perfect information is easy to understand and i got all the concepts but value of imperfect information is difficult. Please help me for the better understanding.Imperfect information – The forecast is usually correct, but can be incorrect. Imperfect information is not as valuable as perfect information.
When the degree of input or variables is unknown, and it makes the outcome of a decision-making process uncertain, it’s called the imperfect information. The future predictions can be made with precision but not with certainty.The approach to calculate the value of perfect and imperfect information is the same. So the value of information (either perfect or imperfect) may be calculated as follows:
Expected Profit (Outcome) WITH the information LESS Expected Profit (Outcome) WITHOUT the information.https://www.youtube.com/watch?v=2yCxS8WGKBE
Calculations on “imperfect” are extremely unlikely in the exam.
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