OIM 301 Lecture Notes - Lecture 5: Expected Value Of Perfect Information, Emv, Batch Production
1 Mar 2017
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Expected value of perfect information (evpi: if we could determine the future scenario (predict the state of nature), future scenarios is called perfect information which is very valuable we"d know what decision to make. Evpi = expected value with perfect information (evwpi) max (emv of alternatives: expected value with perfect information, expected value of perfect information. Expected return if we have perfect information before a decision has to be made: example. A test can be administered before each batch production is started that will correctly determine the state of the machine. Should the test be administered: example 2. Decision trees: decision tree is a graphical display of decision alternatives, where decisions are represented by square nodes and chances by circle nodes. A convenient tool when the problem involves many sequential decisions and later choices are based on prior ones: a decision tree consists of 2 types of nodes.
