RISK: EXPONENTIAL SMOOTHING FORECASTING AND VALUE OF INFORMATION Risk: The Value of Information Scenario: Using the same situation from the Module 3 SLP, recall that you are deciding among three investments. You have heard of an expert who has a highly re

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Home>Applied Sciences homework help>RISK: EXPONENTIAL SMOOTHING FORECASTING AND VALUE OF INFORMATION Risk: The Value of Information Scenario: Using the same situation from the Module 3 SLP, recall that you are deciding among three investments. You have heard of an expert who has a highly re

Example

Value Measure U-Value
Market Behavior
Product choices 0.4 Want high value Market behavior
50 50 Expert High value Avg Value
>>> High V, High C Says "wants high value" 0.85 0.08
Says "wants avg value" 0.15 0.92
26 26 0.6 Want avg value
10 10
0.4 Want high value
8 8
Avg V, avg C
26
26 24.2 24.2 0.6 Want avg value
35 35
Consult the expert
0 0

Example (2)

Value Measure U-Value
Market Behavior
0.4 0.6
Product choices 0.4 Want high value Market behavior
50 50 Expert High value Avg Value
High V, High C Says "wants high value" 85% 8%
Says "wants avg value" 15% 92%
26 26 0.6 Want avg value
10 10 Expert
38.8% Says "wants high value" 34.0% 4.8%
61.2% Says "wants avg value" 6.0% 55.2%
0.4 Want high value 100.0%
8 8 Conditiional
Avg V, avg C Market behavior
Expert High value Avg Value
24.2 24.2 0.6 Want avg value Says "wants high value" 87.6% 12.4% 100%
35 35 Says "wants avg value" 9.8% 90.2% 100%
0.876 Want high value
50 50
37.276168 >>> High V, High C
37.276168
45.04 45.04 0.124 Want avg value
10 10
0.388 Says "want High V
45.04 45.04 0.876 Want high value
8 8
Avg V, avg C
11.348 11.348 0.124 Want avg value
Consider 35 35
>>> Consult Expert
37.276168 37.276168 0.098 Want high value
50 50
High V, High C
13.92 13.92 0.902 Want avg value
10 10
0.612 Says "wants Avg V
32.354 32.354 0.098 Want high value
8 8
>>> Avg V, avg C
32.354 32.354 0.902 Want avg value
35 35

Practice Problem

Value Measure U-Value
0.7 Left Future Behavior
25 25 Expert Left Right
Alternative 1 Says "Left" 0.92 0.12
Says "Right" 0.08 0.88
23.5 23.5 0.3 Right
20 20
24.5 0.7 Left
24.5 20 20
>>> Alternative 2
24.5 24.5 0.3 Right
35 35

Consult the Expert??? You do it. Then check your results.

Practice Problem-Solution

Value Measure U-Value
0.7 0.3
0.7 Left Future Behavior
25 25 Expert Left Right
Alternative 1 Says "Left" 0.92 0.12
Says "Right" 0.08 0.88
23.5 23.5 0.3 Right
20 20 Expert
68.0% Says "Left" 0.644 0.036
32.0% Says "Right" 0.056 0.264
0.7 Left 100.0%
20 20 94.7% 5.3% 100.0%
Alternative 2 17.5% 82.5% 100.0%
24.5 24.5 0.3 Right
35 35
0.947 Outcome 1
25 25
27.1798 >>> Alternative 1
27.1798
24.735 24.735 0.053 Outcome 2
20 20
0.68 Says "Left"
24.735 24.735 0.947 Outcome 1
20 20
Alternative 2
20.795 20.795 0.053 Outcome 2
35 35
>>> Consult Expert
27.1798 27.1798 0.175 Outcome 1
25 25
Alternative 1
20.875 20.875 0.825 Outcome 2
20 20
0.32 Says "Right"
32.375 32.375 0.175 Outcome 1
20 20
>>> Alternative 2
32.375 32.375 0.825 Outcome 2
35 35

EV with Expert info is $27.18 EV w/o Expert info is $24.50 Increased value. Is it worth consulting him?

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