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Unformatted text preview: 5 30.0% 0 16.5% 5 9.9% 0 15 Problem 12.12 (a)  What is the value of perfect informa-on to Liedtke regarding Texaco’s reac-on to a counteroffer of $5 Bn? This means Liedtke could learn how Texaco would react to his $5 Bn counteroffer, but Liedtke cannot affect how Texaco would react. 16 Problem 12.12 - a EV with informa-on about Texaco’s response = 4.63 Bn EV without informa-on about Texaco’s response = 4.63 Bn Therefore, EVPI = 0 17 Problem 12.12 (b) & (c) Concepts: Value of informa-on about court decision and -ming of informa-on (i)  Suppose Liedtke could learn about court’s decision before making his current decision (ii)  Suppose court decision informa-on could be obtained only aper making his current decision (c) Why is EVPI in (i) higher than that in (ii)? 18 Problem 12.12 – b(i) EV with informa-on about court award = 4.98 Bn EV without informa-on = 4.63 Bn EVPI = 0.35 Bn 19 Is this right? •  We did not allow any devia-on in the feasible set of ac-ons upon learning court’s decision. •  What assump-on did we make on the previous slide about Kinnear’s state of informa-on? •  Does this maeer? 20 Problem 12.12 – b(ii) EVPI = 4.93 – 4.63 = 0.3 Bn Timing does affect value of informa-on Can you point out why EVPI goes down in this example? 21 Why -ming maeers? •  In slide #19, Liedtke has the op-on to accept $2 Bn if award were 0 (which is the best op-on in this case) •  In slide #21, Liedtke cannot accept $2 Bn anymore. He must first choose to counteroffer before learning how court would rule. •  This reduces value of informa-on. •  This principle is generally true. 22 Problem 12.12 What if Kinnear also learns of the court award? EVPI = 4.1 – 4.63 = - 0.53 Bn The loss to Liedtke is greater than the value of informa-on if Kinnear also finds out about...
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