A product is being considered and the market for the item may be Favorable or Un

Question

A product is being considered and the market for the item may be Favorable or Unfavorable, the company must decide if it is worth having the product reviewed by professionals. If the product is successful the profit is $750,000 if the product is a failure then a negative payoff of $-250,000 results. Probability of Favorable .80 Success150 0.75 A ccept Failure 0.25 250 Favorable Reject Review Success750 0.417 A ccept Failare Unfavorable 0 583 Reject .750 0.65 0.35 Do Not Review Reject What is the EVSI?

Explanation / Answer

EV without information =0.65*750-0.35*250=400

EV with sample information = 0.8*(.75*750-0.25*250)+0.2*(0.417*750-0.583*250) = 433.4

EVSI =433.4-400=33.4

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