Decision Trees

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  • 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


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