Question - An investor is to purchase one of three types of real estate. The investor must decide among an apartment building, an office building, and a warehouse. The future states of nature that will determine how much profit the investor will make are good economic conditions and poor economic conditions. The profits that will result from each decision in the event of each state of nature are shown above.
Payoff Table
|
Good Economic
Conditions
|
Poor Economic
Conditions
|
|
Decision (Purchase)
|
50%
|
50%
|
|
Apartment building
|
$65,000
|
$30,000
|
|
Office building
|
100,000
|
-40,000
|
|
Warehouse
|
30,000
|
10,000
|
Which investment has the highest EMV?
What is the expected value of perfect information in this problem?