Decision trees.

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?

Back

Card 4

Front

What is net gain?

Back

Card 5

Front

What are the advantages of decision trees?

Back

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Decision trees.