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EVPI Formula:
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EVPI (Expected Value of Perfect Information) is a decision analysis concept that measures the maximum amount a decision maker would be willing to pay for perfect information before making a decision. It represents the difference between the expected payoff with perfect information (EPPI) and the expected monetary value (EMV) of the best decision without perfect information.
The calculator uses the EVPI formula:
Where:
Explanation: EVPI quantifies the value of eliminating uncertainty in decision-making by obtaining perfect information about future outcomes.
Details: Calculating EVPI helps decision makers determine whether it's worth investing in additional information gathering. It provides an upper limit on how much should be spent to reduce uncertainty before making a final decision.
Tips: Enter EPPI and EMV values in dollars. Both values must be non-negative numbers. The calculator will compute the difference to determine the EVPI.
Q1: What does a negative EVPI indicate?
A: EVPI should never be negative in theory. If you get a negative result, it suggests that EPPI is less than EMV, which contradicts the definition of perfect information.
Q2: When is EVPI equal to zero?
A: EVPI equals zero when perfect information would not change the decision, meaning there's no value in obtaining additional information.
Q3: How is EPPI calculated?
A: EPPI is calculated by summing the maximum payoff for each state of nature multiplied by the probability of that state occurring.
Q4: What's the relationship between EVPI and decision making?
A: EVPI helps determine the maximum amount to spend on market research, information gathering, or any activity that could reduce uncertainty in decision making.
Q5: Can EVPI be applied to non-monetary decisions?
A: While typically used for monetary decisions, the concept can be adapted for other value systems by using appropriate utility measures instead of dollar values.