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Uncertainty |
Uncertainty
The term "uncertainty" refers to the possibility of multiple outcomes.
Information
In statistical inference and strategy, information is the resolution of uncertainty.
Value of Information
[!quote] Value of information (VOI or VoI) is the amount a decision maker would be willing to pay for information prior to making a decision.
It is the value of the reduction in uncertainty that the information provides.
In a monetary context, it is the reduction of expected opportunity loss.
\text{EVI} = \text{EOL} - \text{EOL}|I
Expected Value of Perfect Information
Expected value of perfect information (EVPI) is the price that one would be willing to pay in order to gain access to perfect information.
[!info] Perfect Information Perfect information is hypothetical information that would eliminate all uncertainty.
The perceived value of decreased uncertainty must be weighed against its cost.
In Construction Estimating
This concept provides the basis for the solution of one or more open-problems-in-estimating. To reduce risk in construction-estimating, an organization pays in estimator hours. These hours have a direct cost in salary and benefits, however the greater cost is the opportunity cost of tying up an estimator who could otherwise be starting a new project.
In many cases, the utility of doubled throughput far outweighs the increased risk of individual bids.
Types of Uncertainty
Aleatory Uncertainty
[!info] Also Known As
- statistical uncertainty
- stochastic uncertainty
- random error
Aleatory uncertainty is inherent randomness in data that can't be explained away.
Epistemic Uncertainty
[!info] Also Known As
- systematic uncertainty
- model uncertainty
Epistemic uncertainty is that which arises from a lack of knowledge, and can be eliminated with access to #information.