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Step 2.
Calculate (EV with PI).
If PI says A will occur, then you would select Alternative _______ with payoff _____ .
If PI says B will occur, then you would select Alternative _______ with payoff _____ .
If PI says C will occur, then you would select Alternative _______ with payoff _____ .
The probability for PI to say A will occur is ______ .
The probability for PI to say B will occur is ______ .
The probability for PI to say C will occur is ______ .
The expected payoff with PI
= sum of all possible payoffs weighted by their probabilities
= _____________________________________________________
= _______________________
Step 3.
EVPI = (EV with PI) (EV without PI)
= ______________________________
= ____________
This is your answer to Part 2 question.
Part 3.
Part 1 and Part 2 can be put in the extended Payoff table.
(1) Put your results in Part 1 and Part 2 into the extended payoff table below.
Alternatives
1
2
3
4
States of Nature
A
B
C
P(A)=0.7 P(B)=0.1 P(C)=0.2
120
-100
60
90
100
70
80
100
80
-50
80
90
(2) Circle and label your decision and its EMV you calculated in Part 1 in the table.
(3) Circle and label (EV without PI) and (EV with PI) in the table.
(4) Calculate EVPI.
Step 2.
Calculate the expected opportunity loss for each alternative.
EOL(Alt. 1) = __________________________________________ = __________;
EOL(Alt. 2) = __________________________________________ = __________;
EOL(Alt. 3) = __________________________________________ = __________;
EOL(Alt. 4) = __________________________________________ = __________.
Step 3.
Pick up the alternative with Minimum EOL, which is Alt. _______ , with
EOL=______________.
Part 2.
Calculations in Part 1 can be put in the extended opportunity loss table.
(1) Put your results in Part 1 into the extended opportunity loss table below.
Extended opportunity losses (regrets) table:
States of Nature
A
B
C
Alternatives P(A)=0.7 P(B)=0.1 P(C)=0.2
1
2
3
4
Expected Opportunity
Loss
(EOL)
(2) Circle and label the best decision and its EOL in the table.
Part 3.
Compare the result we have here to those we had in Exercise on EMV and EVPI.
1. The decision from the Minimum EOL Approach is the same as the decision from
the Maximum EMV Approach is.
a. True
b. False
2. Minimum EOL = EVPI.
a. True
b. False