Engineering Decision Making and Risk Management

Chapter 8The Value of Information

Learning Objectives:

After studying this chapter, the reader will be able to do the following:

1. Calculate the expected value of perfect information relevant to a decision with uncertainty (Sections 8.1 and 8.3).
2. Calculate the expected value of imperfect information relevant to a decision with uncertainty (Sections 8.2 and 8.3).
3. Estimate the relative value of testing different alternatives (Section 8.4).
4. Estimate the relative value of measuring different uncertain attributes (Section 8.5).

Information about a product or a system that is being developed is usually valuable. When Ronnie Harker, a Royal Air Force test pilot, flew an early version of the North American P-51 Mustang in 1942, he realized that its mediocre performance at high altitudes was due to an underpowered engine, and that using a different engine (the more powerful Rolls-Royce Merlin 61) would significantly improve the fighter. His suggestion, when adopted, allowed the Allies to deploy the P-51 (shown in Figure 8.1) as a long-range daytime escort over Europe during World War II, which increased the effectiveness of their strategic bombing campaign against the German industrial sector (Kennedy, 2013).

Figure 8.1 Four US Army Air Force North American P-51 Mustang fighters.

(Photo credit: United States Army Air Force.)

More recently, testing prototypes of a littoral combat ...