Below, is a pay-off table for four projects P1, P2, P3, and P4; with different possible outcomes in four different states of the world S1, S2, S3, and S4. The value in parenthesis and next to each state indicates the probability of that state.
1. Which project has the smallest expected regret, and what is that smallest expected regret?
2. What is the value of EVPI (the expected value of perfect information)? What does this value represent, and for what purposes is it used?
S1 (0.35) S2 (0.25) S3 (0.20) S4 (0.20)
P1 12,000 -1,800 9,800 7,800
P2 10,500 0 2,000 8,600
P3 -2,000 14000 10,000 1,200
P4 5,200 5,200 5,200 5,200