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7 Cards in this Set
- Front
- Back
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What are decisions tree?
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Decision trees are schematic diagrams that show alternative outcomes and interdependence of choices in a sequential decision process.
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How do you construct decision tree?
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Construct it from left to right using square boxes for controllable (decision) points and circles for uncontrollable (chance) events.
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What are the branches of the decision tree for?
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Each branch leads to a payoff that is stated in monetary (or utility) terms in the right.
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How do you analyse decision tree?
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Decision trees are analyzed backwards (right to left) by multiplying the payoffs by their respective probabilities (which are assigned to each chance event).
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What the highest expected value identify?
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The highest expected value identifies the best course of action.
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Why is decision tree important?
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Decision trees help to structure decisions in an objective way, force an explicit identification of alternatives and foster a clear distinction between controllable and uncontrollable variables.
They allow us to incorporate uncertainty in a systematic, objective way. But, monetary and probability values need to be estimated and Expected value approach might not be the best. |
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sample of decision tree
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calculate all the important values on decision tree
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