Lesson 3: SA and Updating Information Flashcards
1
Q
What is EVSI?
A
The expected value of sample information.
Imperfect information - no information
The maximum price one can pay to acquire imperfect information
2
Q
What is the EVPI?
A
The expected value of perfect information:
the difference between expected value with perfect information and value without
when:
P(+|E) = P(-|no E) = 1
3
Q
What is the difference between certainty equivalent and expected value?
A
the certainty equivalent is the amount I would accept now to avoid unexpected outcome
the difference between CE and EV is the premium a gambler is willing to pay.
the relationship between z and EV determines risk aversion
4
Q
what is the purpose of the utility function?
A
transforming payoffs (objective) with respect to a certain scale (subjective, from 0 to 1)
5
Q
A
