Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below. Suppose that Julie estimates the following probabilities for each level of restaurant popularity. If Julie had perfect information,the expected payoff under certainty is 310.

Question

Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below.  Suppose that Julie estimates the following probabilities for each level of restaurant popularity.  If Julie had perfect information,the expected payoff under certainty is 310.

Quizplus · Accepted Answer

If Julie had perfect information, she would know which state of nature (low, medium, high popularity) would occur and she would always choose the location with the highest expected payoff for that state of nature. However, the expected payoffs for each location are not the same for all three states of nature. Therefore, she cannot achieve an expected payoff of 310 no matter how much perfect information she has.

Julie Is Planning to Open a Restaurant and Is Considering