Expected value of including uncertainty

From these inputs, other quantities, called result variables, can be computed; these provide information for the decision maker.

Decisions are reached through quantitative analysis and model building by simply using a best guess (single value) for each input variable.

The variance in that distribution reflects the degree of subjective uncertainty (or lack of knowledge) in the input quantity.

For this, Max Henrion, in his Ph.D. thesis, introduced the expected value of including uncertainty (EVIU), the topic of this article.

The single decision, in the green rectangle, is the number of minutes that one will decide to leave prior to the plane's departure time.

The probability distribution for the first uncertain variable, Time_to_drive_to_airport, with median 60 and a geometric standard deviation of 1.3, is depicted in this graph:

If one arrive too late, one will miss one's plane and incur the large loss (negative utility) of having to wait for the next flight.

When uncertainty is taken into account, the expected value smooths out (the blue curve), and the optimal action is to leave 140 minutes before the flight.

The difference between these two is the EVIU: In other words, if uncertainty is explicitly taken into account when the decision is made, an average savings of 162.7 minutes will be realized.