Bounds and properties of the expected value of sample information for a project-selection problem |
| |
| Authors: | L. P. Fatti A. Mehrez M. Pachter |
| |
| Affiliation: | 1. National Research Institute for Mathematical Sciences of the Council for Scientific and Industrial Research, Pretoria, South Africa;2. Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, Beer Sheva, Israel, and National Research Institute for Mathematical Sciences |
| |
| Abstract: | In this article we extend the work of Mehrez and Stulman [5] on the expected value of perfect information (EVPI) to the expected value of sample information (EVSI) for a class of economic problems dealing with the decision to reject or accept an investment project. It is shown that shifting the mean of the underlying a priori distribution of X, the project's monetary value from zero in either direction will decrease the associated EVSI of Y, the random sampled information. A theorem is then presented which gives an upper bound on the EVSI over all distributions of Y, as well as the structure of the posterior mean E[X|Y] for which this upper bound is achieved. Finally, the case where E[X|Y] is linear in Y is discussed and its performance compared with that of the optimal case. |
| |
| Keywords: | |
|
|
