EXPECTED VALUE OF PERFECT INFORMATION [EVPI]
In many decision problems, business faces the problem of predicting future demand of a product or of a service and accordingly it has to choose a strategy that will give optimal payoffs. If the demand for any product or service is definitely known, naturally one would choose the strategy that has zero regret or maximum payoff. In the absence of the perfect information, one would go in for the strategy with optimal regret or payoff.
Assuming that the decision-maker can obtain services of a person or agency who can perfectly predict future demand, what would the value of such predictor to him? Obviously, the decision maker must compare what such additional information cost him with the additional profit ...
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