Question

suppose that you have an option to hire a consultant who has the ability to predict the future with 100 percent accuracy. using the consultant's reliable recommendations, you found that the expected value with perfect information is equal to $200. without the consultant's insights you determined the emv to be equal to $175. would you pay the consultant $30 for her service

Answer 1

Answer: d. No, because EVPI is $25, which is less than the consultant's fee of $30

Explanation:

The expected value with the consultant's input is $200 and the expected value without it is $175.

The difference of $25 is the maximum that the consultant should be paid because anything larger than this would result in an opportunity loss because if the consultant is paid $30, the net return earned will be $170 which is $5 lower than what would have been earned without her input.

The $30 is simply not worth it.