A hospital group has to replace its old MRI and related equipment. Two choices are under consideration: one is to invest in technology similar to what they have used but a newer model, the other is to try a newer technology similar to what they have used but a newer model, the other is to try a newer technology that promises higher efficiency and significantly clearer results, but, may not produced as advertised. The following table shows the anticipated profits ($000) under the two choices and two states of nature...

New Tech work as advertised New Tech doesn't work as advertised

Current Technology 125 125

New Technology 200 50

The hospital group estimates that the probability of the new MRI equipment works as advertised as 0.3.

a) Draw a decision tree for the hospital group. What is the optimal solution and their expected value? What is EVPI?

b) The hospital group could hire an expert in MRI technology and get the expert's prediction if the new MRI technology will work as advertised or not. The expert services cost $5000. Historically, you have found out that when a new MRI technology has worked as advertised the expert predicted it would happen 0.9 of the time. On the other hand, when a new MRI technology did not work as advertised, the expert predicted correctly 0.8 of the time. Develop the decision tree you need to flip. On the tree, insert the appropriate probabilities. And flip the tree and find the new probabilities.

c) What is the optimal solution and what is the max expected value? (From information provided in part b)

d) What is the EVPI? EVSI?