January 10th, 2018
Explain the concepts of Payoff Table, Expected Value of Perfect Information
Both payoff table and expected value of perfect information (EVPI) are concepts used in decision-making theory. The Payoff table presents the expected payoffs or returns that arise out of combinations of various decision alternatives – actions that the decision maker can control – and states of nature – conditions beyond the control of the decision maker. Expected value of perfect information (EVPI) helps decision makers to evaluate whether to take the decision immediately or make the decision later after gathering information. EVPI helps to determine whether the cost of additional information is justifiable. It is calculated as the difference between expected profit with perfect information and the maximum expected monetary value (EMV).