Bounds and properties of the expected value of sample information for a project‐selection problem

L. P. Fatti, A. Mehrez and M. Pachter

Naval Research Logistics (NRL), 1987, vol. 34, issue 1, 141-150

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.

Date: 1987
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Citations: View citations in EconPapers (7)

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https://doi.org/10.1002/1520-6750(198702)34:13.0.CO;2-S

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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:34:y:1987:i:1:p:141-150

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