A blog from the Maltese Islands (Malta, Gozo, Comino)
The Cost of Uncertainty
An unavoidable opportunity loss is the cost associated with uncertainty.
The expected opportunity loss associated with a decision provides a measure of the expected monetary gain from the removal of all uncertainty about future events.
From the opportunity loss/regret matrix, the cost of uncertainty is measured by the minimum expected opportunity loss.
From the payoff matrix, the cost of uncertainty is measured by the difference between the expected payoff associated with choosing the correct alternative under each state of nature and the highest expected payoff available from among the decision alternatives.
The cost of uncertainty is the unavoidable economic loss that is due to chance. Using this concept, it becomes possible to judge the value of gaining additional information before choosing among decision alternatives.