The calculated Expected Value of Sample Information (EVSI) is $286,600. This represents the amount the investor is willing to pay to acquire additional information on residents' resistance, enhancing decision-making beyond current knowledge.
In the image that you sent, the EVSI is calculated to be **$205,000**. This means that the investor is willing to pay up to $205,000 to learn more about the resistance from area residents before making the decision of whether or not to purchase the land.
Here is the calculation of EVSI:
EVSI = EVPI - EVI
Where:
* EVPI = Expected Value of Perfect Information
* EVI = Expected Value of Current Information
EVPI
The EVPI is the expected profit that the investor would make if they had perfect information about the resistance from area residents. To calculate the EVPI, we need to consider the two following cases:
1. High resistance to rezoning: In this case, the investor would make a profit of -$160,000 if they purchased the land.
2. Low resistance to rezoning: In this case, the investor would make a profit of $590,000 if they purchased the land.
We can calculate the EVPI as follows:
EVPI = (Probability of high resistance) * (Profit if high resistance) + (Probability of low resistance) * (Profit if low resistance)
EVPI = (0.51) * (-$160,000) + (0.49) * ($590,000)
EVPI = $205,000
EVI
The EVI is the expected profit that the investor would make without any additional information about the resistance from area residents. To calculate the EVI, we need to consider the probability of each state of nature (high resistance or low resistance) and the expected profit for each state of nature.
The EVI is calculated as follows:
EVI = (Probability of high resistance) * (Expected profit if high resistance) + (Probability of low resistance) * (Expected profit if low resistance)
EVI = (0.51) * (-$160,000) + (0.49) * ($0)
EVI = -$81,600
EVSI
Now that we have calculated the EVPI and the EVI, we can calculate the EVSI as follows:
EVSI = EVPI - EVI
EVSI = $205,000 - -$81,600
EVSI = $286,600
Therefore, the EVSI is **$286,600**. This means that the investor is willing to pay up to $286,600 to learn more about the resistance from area residents before making the decision of whether or not to purchase the land.