Question

What is the EVPI?
Success Moderate Success Failure
Probability 0.3 0.3 0.4
Sell Company 93 93 93
Form Joint Venture 210 120 89
Sell Software on own 420 240 -100

Answer 1

EVPI = (Expected value with perfect information) − (Expected value of best current decision).

1. Expected value of each decision now:
- Sell Company = 0.3(93)+0.3(93)+0.4(93) = 93
- Joint Venture = 0.3(210)+0.3(120)+0.4(89) = 134.6
- Sell Software on own = 0.3(420)+0.3(240)+0.4(−100) = 158

Best current EV = 158.

2. Expected value with perfect information (choose best action in each state):
- Success: max = 420
- Moderate Success: max = 240
- Failure: max = 93

EV with perfect info = 0.3(420)+0.3(240)+0.4(93) = 235.2

3. EVPI = 235.2 − 158 = 77.2

So EVPI = 77.2 (units same as payoffs).