Suppose that you have an option to hire a consultant who has the ability to pred

Question

Suppose that you have an option to hire a consultant who has the ability to predict the future with 100 percent accuracy. Using the consultant's reliable recommendations, you found that the expected value with perfect information is equal to $200. Without the consultant's insights you determined the EMV to be equal to $175. Would you pay the consultant $30 for her service? Why or why not? 0 a. Yes, because EVP1 is $30. b. No, because EVPI is $30. O c. Yes, because expected value with perfect information is higher than the consultant's fee. d. No, because EVPI is $25, which is less than the consultant's fee of $30

Explanation / Answer

Expected value of perfect information EVPI = EV with perfect information - EV

= 200 - 175 = 25$

d. No because EVPI is 25 $, which is less than the consultant's fee of 30$

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