1. What is EVPI?

EVPI (Expected Value of Perfect Information) represents the maximum amount a decision maker would be willing to pay for perfect information before making a decision. It quantifies the value of eliminating uncertainty in decision-making processes.

2. How Does the Calculator Work?

The calculator uses the EVPI formula:

Where:

• \( EV_{\text{with perfect info}} \) — Expected value with perfect information ($)
• \( EV_{\text{without}} \) — Expected value without perfect information ($)

Explanation: The difference between what you could achieve with complete certainty and what you expect to achieve with current information represents the value of perfect information.

3. Importance of EVPI Calculation

Details: EVPI helps decision makers determine whether additional information is worth acquiring. It's particularly valuable in business decisions, medical treatments, and risk management where uncertainty plays a significant role.

4. Using the Calculator

Tips: Enter both expected values in dollars. The EV with perfect information should typically be higher than the EV without perfect information for the calculation to make practical sense.

5. Frequently Asked Questions (FAQ)

Q1: What does a negative EVPI indicate?
A: A negative EVPI suggests that perfect information would actually decrease the expected value, which is unusual and may indicate errors in the input values or calculation.

Q2: How is EV with perfect information calculated?
A: EV with perfect information is calculated by considering the maximum payoff for each possible state of nature, weighted by their probabilities.

Q3: When should EVPI be used?
A: EVPI is most useful in decision analysis when evaluating whether to invest in additional research or information gathering before making a final decision.

Q4: What's the relationship between EVPI and decision trees?
A: EVPI is often calculated after constructing a decision tree to quantify the value of eliminating uncertainty in the decision-making process.

Q5: Can EVPI be zero?
A: Yes, EVPI can be zero when perfect information wouldn't change the decision outcome, meaning there's no value in acquiring additional information.