Example (continued)
Define the midpoint m2 between 2500 and m1 in similar manner. Let’s state m2 = 2620. v(2620) = 0.5·v(2500) + 0.5·v(2900) = 0.25
The midpoint m3 between m1 and 3500 is defined to be m3 = 3150. v(3150) = 0.5·v(2900) + 0.5·v(3500) = 0.75
The value function for ”Expected salary in 3 years” can be approximated using the calculated points (see the next slide)
Higher accuracy can be acquired by splitting the intervals further
The higher the salary the larger an increase is required to produce the same increase in value for the DM.
Value measurement techniques: Bisection method