Decision Trees
- Created by: BenHyde_
- Created on: 08-05-16 13:41
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- Decision Trees
- Pros
- Makes managers think about the probability and pay off for the actions. Managers have numerical evidence instead of opinion
- Allows managers to compare options quantitavley
- Useful in familiar situations when the business has enough experience to estimate probabilites
- Cons
- It ignored any qualitative data such as opinions
- Probabilities and pay offs are hard to predict accurately, which could flaw the decision and things may work out differently.
- In reality there are probably more outcomes and not consider other outcomes that could influence a decision
- Analysis
- Expected Value
- It's the probability of the outcome occurring multiplied by the expected pay off.
- To work out the EV of a course of action, add the EV of both outcomes together
- Net Gain
- It is the financial gain after the initial costs have been subtracted
- =EV - Initial Costs
- Expected Value
- Pros
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