# Decision trees.

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• Created by: hamishc
• Created on: 01-05-16 18:54
What do decision trees show?
Decision trees are diagrams used to show the best course of action for a business when factoring in probability and expected pay-off.
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What is probability?
The likelihood of an event occurring, usually expressed as a decimal (e.g. 0.6)
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What is expected value?
Probability x expected pay-off.
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What is net gain?
Ev - initial costs.
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What are the advantages of decision trees?
Act as a visual representation of a business decision, useful in familiar situations where the business has experience to make accurate probabilities and benefits, decision trees allow decisions to be made quantitatively.
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What are the disadvantages of decision trees?
Only offer quantitive data, probability is very hard to predict accurately meaning results can be inaccurate, in reality there is a wider range of potential outcomes than the decision tree suggests.
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## Other cards in this set

### Card 2

#### Front

What is probability?

#### Back

The likelihood of an event occurring, usually expressed as a decimal (e.g. 0.6)

### Card 3

#### Front

What is expected value?

### Card 4

#### Front

What is net gain?

### Card 5

#### Front

What are the advantages of decision trees?