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:

Distinguish Hues

The ability to perceive and differentiate colors, often associated with the visual processing of varying wavelengths of light.

Brightness

A measure of how light or luminous a space or source appears to the eye.

Intensity of Nonspectral Color

The degree of strength or vividness of a color that does not correspond to a single wavelength of light but is perceived as a mixture of wavelengths.

McCullough After-effect

A phenomenon where prolonged viewing of colored stimuli causes an object to appear in complementary colors when subsequently viewed on a white background.