Find the Expected Value of Perfect Information A) 268
B) 2

question 9

Multiple Choice

Find the expected value of perfect information.
-A mid-size company is transitioning to a new ERP system. Consequently, company
Files need to be modified and / or updated so as to be compatible for transfer to the new
System. The company is considering three alternatives to deal with this extra work load:
(1) outsourcing (2) hiring temporary staff or (3) using full time staff in overtime. The
Estimated costs (in $100,000) associated with each of these actions depend on the
Difficulty level associated with file modification and transfer, which can be at one of
Three levels (easy, moderately difficult, or extremely difficult) as shown below. If the
Likelihoods of easy, moderately difficult and extremely difficult file modifications are 0.2,0.4 and 0.4, respectively, what is the expected value (in $100,000) of perfect
Information? $$\begin{array} { | l | l | l | l | } \hline \text { Action } & \text { Easy } & \text { Moderately Difficult } & \text { Extremely Difficult } \\\hline \text { Outsource } & 2.5 & 3.0 & 3.5 \\\hline \text { Temporary Staff } & 1.5 & 2.6 & 4.0 \\\hline \text { Overtime } & 1.2 & 2.8 & 4.2 \\\hline\end{array}$$

• A) 2.68
• B) 2.94
• C) 0.26
• D) 0.16
• E) None of the above.

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Definitions:

Formal Operational

This refers to the final stage in Piaget's theory of cognitive development, where individuals (typically adolescents and adults) gain the ability to think abstractly, logically, and systematically.

Hypothesis Testing

A statistical method that is used to determine whether there is enough evidence in a sample of data to infer that a certain condition is true for the entire population.

Equilibrium

is a state of balance or stability, achieved by equal action of opposing forces, often used in physical, chemical, and economic contexts.

Assimilate

The process of incorporating new information into existing cognitive frameworks or schemas.