2.4 - Decision Trees

Question 1

What are Decision Trees?

Answer 1

A mathematical approach to making choices

Question 2

What does a decision tree use to calculate likely outcomes?

Answer 2

Estimates and probabilities

Question 3

What is the 4 step approach to decision trees?

Answer 3

1. Identify the options
2. Add possible outcomes
3. Add associated costs, outcome probabilities and financial results
4. Calculate the Expected Values and Net Gains

Question 4

What are the calculations involved in the Decision Tree?

Answer 4

Expected Value

Net Gain

Question 5

How do you calculate the Expected Value?

Answer 5

(Probability x expected outcome) + (Probability x expected outcome)…..

Question 6

How do you calculate the Net Gain?

Answer 6

Expected value - Costs