Question

What is the EVPI?
Success Moderate Success Failure
Probability 0.3 0.3 0.4
Sell Company 104 104 104
Form Joint Venture 210 120 80
Sell Software on own 420 250 -100

Answer 1

EVPI = (Expected payoff with perfect information) − (Best current expected value)

1) Best payoff in each state:
- Success: max(104, 210, 420) = 420
- Moderate success: max(104, 120, 250) = 250
- Failure: max(104, 80, -100) = 104

2) Expected payoff with perfect information:
= 0.3(420) + 0.3(250) + 0.4(104)
= 126 + 75 + 41.6 = 242.6

3) Best current expected value (EMV of best action):
- Sell Company: 104
- Joint Venture: 0.3(210)+0.3(120)+0.4(80) = 131
- Sell Software on own: 0.3(420)+0.3(250)+0.4(−100) = 161
Best = 161

4) EVPI = 242.6 − 161 = 81.6

So EVPI = 81.6 (same units as the payoffs).