Lecture 07 - EVPI

# Lecture 07 - EVPI - Lecture 7 Expected Value of Perfect...

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1 Lecture 7 Expected Value of Perfect Information EVPI

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2 Today Homework 4 gets passed out Due next Tuesday Questions about the grading function? Questions about last class? Power plant barge example
3 O P I .4 .6 .4 .6 .4 .6 S R S R S R 100 0 90 20 40 50 40 =.4(100)+.6(0) 48 =.4(90)+.6(20) 46 =.4(40)+.6(50) 48 The Original Party Problem Thanks to R. Howard at Stanford for the “Party Problem”

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4 O P I 100 40 “S” 90 What If We Knew the Weather First? O P I .4 .6 “R” 100 0 50 20 50 .4*100 + .6*50 = 70 Base Problem: Use the Porch Make an Average of 48 So the Expected Value of Information (EVPI) = 70 – 48 = 22
5 Indoors 50-10p Porch 20+70p Prior 1.0 0.2 0.4 0.6 0.8 0.3 0.5 0.7 0.9 0.1 20 50 100 Outdoors 100 90 40 p(Sun) Expected Value of Alternative 100p 0 Original Problem: Strategy Regions Indoors Porch Outdoors

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6 Expected Value of Perfect Information (EVPI) Thanks to R. Howard at Stanford for the “Party Problem” "S" "R" p 1-p O I 100 50 Value of Perfect Information Given Various Probabilities of Sun 50+50p "S" "R" .4 .6 O I 100 50 Value of Perfect Information 70 Expected Value of Perfect Information 1.0 0.2 0.4 0.6 0.8 0.3 0.5 0.7 0.9 0.1 20 50 100 Outdoors Porch Indoors 100 90 40 p(Sun) Expected Value of Alternative 50-10p 20+70p 100p 50+50p Value with Perfect Information P("Rain") = .6 P("Sun") = .4
New Base Problem: Party Decision Compare EVPI calculations to this base case (EV=57.8). Choose Alternative 1

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Lecture 07 - EVPI - Lecture 7 Expected Value of Perfect...

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