3.3.3 Decision Trees

Question 1

When are decision trees made?

Answer 1

when the outcome is uncertain

Question 2

What method is used in decision tree?

Answer 2

tracing alternative outcomes of any decision - mapping out different options, possible outcomes and points where decisions have to be made

Question 3

What are decision points on a DT and how are they shown?

Answer 3

shown by squares - points where decisions have to be made

Question 4

What are outcomes in DT and how are they shown?

Answer 4

by circles and are known as chance nodes showing failures, or success of decision

Question 5

What is the probability or chance in DT and how is it shown?

Answer 5

shown as a probability on tree and shows the chance in which the decision has

Question 6

What are the two sources of information used in a Decision tree?

Answer 6

research data and backdata

Question 7

What is the expected monetary values? What is it based on?

Answer 7

financial outcome of the decision

based on predicted profit or loss

Question 8

How does a business calculate the expected monetary values?

Answer 8

multiplies the (probability with the expected profit) for both success and failure then adds together

Question 9

2 adv to decision trees?

Answer 9

show possible course of action not considered before

force management to look at risks

Question 10

3 limitations of decision trees?

Answer 10

information generated isn’t exact
process is time consuming
decisions may be influenced by personal opinion