Heading: Analyzing Risky Decisions
**Reference: Use the decision tree along with the given probabilities to answer the next six questions
Probability Event A = 30% Probability Event B = 70%
Probability Event 1 = 58% Probability Event 2 = 42%
Probability of Event A given that Event 1 occurs = 16%
Probability of Event B given that Event 1 occurs = 84%
Probability of Event A given that Event 2 occurs = 50%
Probability of Event B given that Event 2 occurs = 50%

-*If the cost of obtaining information to determine Event 1 and Event 2 is $5, what is the value of perfect information?
A)-1.96
B)0
C)3.04

Question

Heading: Analyzing Risky Decisions
**Reference: Use the decision tree along with the given probabilities to answer the next six questions 
Probability Event A = 30% Probability Event B = 70%
Probability Event 1 = 58% Probability Event 2 = 42%
Probability of Event A given that Event 1 occurs = 16%
Probability of Event B given that Event 1 occurs = 84%
Probability of Event A given that Event 2 occurs = 50%
Probability of Event B given that Event 2 occurs = 50%
 
-*If the cost of obtaining information to determine Event 1 and Event 2 is $5, what is the value of perfect information?
A)-1.96 
B)0 
C)3.04

Quizplus · Accepted Answer

The value of perfect information (VOPI) is the difference between the expected value with perfect information and the expected value without it, minus the cost of obtaining the information. If the cost is $5 and the VOPI is positive, it means the benefit of having the information exceeds the cost. A positive value like 3.04 suggests that, even after accounting for the $5 cost, there's a net benefit from having the information. Negative values or zero would indicate no benefit or a loss from spending $5 to obtain the information.