3.3.3 Decision Trees

Question 1

What are decision trees used for?

Answer 1

To analyse the probability of success

Question 2

What does a square represent in a decision tree?

Answer 2

A decision node

Question 3

What are the lines coming from each decision node?

Answer 3

Show the possible courses of action and the cost for each action.

Question 4

What does a circle represent?

Answer 4

A chance node which shows alternative outcomes

Question 5

Advantages of decision trees

Answer 5

- good visual representation of the potential outcomes
- allow managers to compare quantitively and objectively

Question 6

Disadvantages of decision trees

Answer 6

- they ignore non-numerical (qualitative) data
- uncertainty as probabilities are difficult to predict
- the values on a decision tree depend on the person who makes it (different opinions)
- in reality there’s a wider range of potential outcomes than the decision tree suggests