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234 Revising judgments in the light of new information
This means that the new information has stopped you from taking the
inferior course of action and thereby increased your expected payoff by
$12 600. However, if the test indicates that the virus is absent, you would
make the same decision as you would without the information from the
test, so the expected value of the information in this case is $0. Given
the probabilities of the two test indications, the expected value of the
imperfect information is:
0.41 × $12 600 + 0.59 × $0 = $5166
(The difference between this and the previous result is caused by
rounding errors.)
As usual, the importance of sensitivity analysis cannot be understated,
and in this respect spreadsheet packages are particularly useful. If the
calculations involved in determining the EVII are carried out on a
spreadsheet in the first place then it is relatively easy to examine the
effect of variations in the inputs to the model. It would then be possible
to make statements like the one which follows. ‘I estimate that the
proposed market research will be 90% reliable. Sensitivity analysis tells
me that it would still be worth carrying out, even if its reliability was as
low as 75% so I am fairly confident that we should go ahead and carry
out the research.’
Practical considerations
We will now outline a number of examples of the application of the
methods we have just discussed and consider some of the practical
problems involved. Clearly, it is easier to identify the expected value
of perfect as opposed to imperfect information, and we recommend
that, in general, calculating the EVPI should be the first step in any
information-evaluation exercise. The EVPI can act as a useful screen,
since some sources of information may prove to be too expensive, even
if they were to offer perfectly reliable data, which is unlikely.
Spetzler and Zamora 1 assessed the value of perfect information as
part of the analysis of a problem faced by a large US corporation which
had to decide whether or not to build a new production plant. If the
corporation decided to build the plant it then had to decide whether
to build an expansion to the plant at the same time as the original
plant or whether to delay the expansion decision until the success of
the original plant was known. The total expected value of the perfect