Bounds and properties of the expected value of sample information for a project-selection problem |
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| Authors: | L P Fatti A Mehrez M Pachter |
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| Institution: | 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 |
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| 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 EX|Y] for which this upper bound is achieved. Finally, the case where EX|Y] is linear in Y is discussed and its performance compared with that of the optimal case. |
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