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value of perfect information

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › value of perfect information

  • This topic has 5 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
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    Posts
  • October 10, 2015 at 4:11 pm #275791
    vinogradovaa
    Participant
    • Topics: 21
    • Replies: 9
    • ☆

    the following example states ” in a concert theatre with uncertain audience of 300 400 and 500 people with associated probabilities of 0.50, 0.30 and 0.20, price per ticket is 25 per person.
    Additional contribution is to be earned from customers at the level of 3, 5 and 10 with corresponding p of 0.3. 0.5 and 0.20. Fixed fee for the concerts is 10.000.

    the table of profits is as follows:

    fee Demand
    300 400 500
    3 (1600) 1200 4000

    5 (1000) 1200 4000

    10 500 4000 7500

    What is the value of perfect info. In the answer it says 490 as it is the value of loss multiplied by joint probabilities. I thought it was zero, as without perfect info
    highest ev corresponds to contribution of 10 and is 590. The same would be with perfect info. under each demand column, as demand would be predicted we could choose
    for 300 demand return of 500, for 400 demand return of 4000 and for 500 demand return of 7500, the ev would be the same 590. If perfect info does not change the value of decision, it s value is zero.

    Thanks.

    October 11, 2015 at 8:26 am #275840
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Firstly the question as you have typed it makes no sense at all.
    If the audience is 300 and the contribution is $3, then the profit is (300 x 3) – 10,000 = (9,100).

    Either you have not typed the whole question correctly, or the question itself is wrong.

    Secondly, the value of perfect information in this sort of question will never be zero. Because you have the benefit of knowing in advance what the outcome will be, you can make the best decision in each case.

    To understand the last bit you need to watch the free lecture on perfect information.

    October 12, 2015 at 11:06 am #275995
    vinogradovaa
    Participant
    • Topics: 21
    • Replies: 9
    • ☆

    Sorry for that, the price per ticket is 25 per person, this is added to the contribution of 3 per person.

    Thanks.

    October 12, 2015 at 11:21 am #276002
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    I am sorry but I can’t spare the time to provide a full solution to the question – I would assume it is provided in full in the book in which you found the question.

    However as I wrote before, the value of perfect information will never be zero and I again do suggest that you watch the free lecture on this, which explains how to calculate it.

    October 12, 2015 at 1:07 pm #276017
    vinogradovaa
    Participant
    • Topics: 21
    • Replies: 9
    • ☆

    thanks for that, but what is the value of perfect information, if perfect information does not change the decision?

    Thanks.

    October 12, 2015 at 5:19 pm #276055
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    It always will change the decision – again you need to watch the lecture in order to understand why.

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