Value of Perfect Information
sammyd22
Registered Posts: 207 ? ? ?
In my recent exam paper there was a 5mark question regarding the value of perfect information similar to this:
Project1  Project2  Project3
Probability  Weather:
.3 Good $600 $400 $200
.5 Moderate $200 $150 $100
.2 Poor ($200) $50 ($400)
What is the value that would be paid for perfect information?
I approached the question as follows:
(.3 x $600 + .5 x $200 + .2 x $50) = 180 + 100 + 10 = 290 Therefore a business could afford to pay anything upto this aqmount for perfect info.
As there is a vast amount of knowledge on this forum would anyone be kind enough to advise on whether i approached this correctly?
Project1  Project2  Project3
Probability  Weather:
.3 Good $600 $400 $200
.5 Moderate $200 $150 $100
.2 Poor ($200) $50 ($400)
What is the value that would be paid for perfect information?
I approached the question as follows:
(.3 x $600 + .5 x $200 + .2 x $50) = 180 + 100 + 10 = 290 Therefore a business could afford to pay anything upto this aqmount for perfect info.
As there is a vast amount of knowledge on this forum would anyone be kind enough to advise on whether i approached this correctly?
0
Comments

Wouldn't it be a different value per project?
Question lacks info, but I'm assuming the probability is a weighting of importance?0 
Use your probabilities to find the expected value in the normal way.
Then do the calculations on the basis of knowing what will happen i.e if good weather then probability x that outcome, if moderate prob x outcome and if bad that, then add them up.
The difference in expected value between the higher value (when you know which project to pick) and the lower value (based on the normal expected value calculation) is the value of perfect information.0
Categories
 All Categories
 1.2K Books to buy and sell
 2.3K General discussion
 18.9K For AAT students
 249 NEW! Qualifications 2022
 139 General Qualifications 2022 discussion
 8 AAT Level 2 Certificate in Accounting
 33 AAT Level 3 Diploma in Accounting
 59 AAT Level 4 Diploma in Professional Accounting
 8.9K For accounting professionals
 23 coronavirus (Covid19)
 274 VAT
 92 Software
 274 Tax
 136 Bookkeeping
 7.3K General accounting discussion
 193 AAT member discussion (AATQB, MAAT, FMAAT and AAT Licensed Accountants and Bookkeepers)
 3.8K For everyone
 39 AAT news and announcements
 352 Feedback for AAT
 2.8K Chat and offtopic discussion
 589 Job postings
 17 Who can benefit from AAT?
 36 Where can AAT take me?
 44 Getting started with AAT
 26 Finding an AAT training provider
 48 Distance learning and other ways to study AAT
 25 Apprenticeships
 65 AAT membership