Perfect Information Tree - Decision Trees: Expected Value, Step by Step

Perfect information moves the chance event before the decision, so each state can choose separately.

highlighted = computed this step

Learn first

For a simple value-of-information check, put the chance node first. Motivation: perfect information means demand is known before choosing.

\text{observe demand, then choose}

When demand is High, the best visible choice is Build with value $120.

\text{High branch value}=\$120

When demand is Low, the best visible choice is Small with value $30.

\text{Low branch value}=\$30

This is perfect information, not a forecast product. The tree assumes the demand state is revealed.

\text{perfect information is an assumption}