A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:
State of Nature
Rezoning Approved Rezoning Not Approved
Decision Alternative S1 S2
Purchase,d1 600 -200
Do not purchase,d2 0 0
Suppose P(s1)=0.6 and P(s2)=0.4. Using the payoff table in the problem, calculate the following:
a) minimum expected payoff
b) maximum expected payoff
c) expected value with perfect information (EVwPI)
d) expected value of perfect information(EVPI)