9781118041581

568 Chapter 13 The Value of Information

FIGURE 13.4

Yacht Orders and the

Stock Market

225

1.0

0

$225

$100

350

1.0

0

$350

–$150

Growing economy

Recession

Growing economy

Recession

Order 100

yachts

Order 50

yachts

127.5

.22

.78

$225

$100

–40

.22

.78

$350

–$150

Growing economy

Recession

Growing economy

Recession

Order 100

yachts

Order 50

yachts

350

127.5

236

Assess

stock

market

Stocks

rise (S+)

Stocks

fall (S–)

.4875

.5125

dealer can anticipate an overall expected profit of (.4875)(350,000) (.5125)(127,500) 

$236,000. The dealer does well to gear the size of the order to future prospects of the

economy as signaled by stock movements. The dealer’s expected value of information is

EVI 236,000 175,000 $61,000.

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