Problem -
Deborah Hollwager, a concessionaire for the Amway Center in Orlando, has developed a table of conditional values for the various alternatives (stocking decisions) and states of nature (size of crowd):
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States of Natures (Size of Crowed)
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Alternatives
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Large
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Average
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Small
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Large inventory
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$20,000
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$10,000
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-$2,000
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Average inventory
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$15,000
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$12,000
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$6,000
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Small inventory
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$9,000
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$6,000
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$5,000
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If the probabilities associated with the states of nature are 0.3 for a large crowd, 0.5 for an average crowd, and 0.2 for a small crowd, determine:
a) The alternative that provides the greatest expected monetary value (EMV).
b) The expected value of perfect information (EVPI).