Explain Decision making using EMV and EVPI.
A concessionaire for the local ballpark has established a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowed).
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|
States of Nature
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|
Alternative
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Large($)
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Average($)
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Small($)
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|
Large Inventory
|
22,000
|
12,000
|
-2,000
|
|
Average Inventory
|
15,000
|
12,000
|
6,000
|
|
Small Inventory
|
9,000
|
6,000
|
5,000
|
If the probabilities related with the states of nature are 0.30 for a large crowed? 0.50 for an average crowed and 0.20 for a small crowed, determine (a) the substitute that provides the greatest expected monetary value (EMV) (b) the expected value of perfect information (EVPI).