Decision Tree

Question 1

What does a decision tree do?

Answer 1

Break down the complex decision process, comparing the financial
benefit of the options, into a series of simple steps. Decision makers that
have a neutral attitude to risk will use expected values and therefore, the decision tree will
be useful in this case.

Question 2

Limitations of using a decision tree

Answer 2

All costs and revenues for the payoffs are estimates as they will be incurred in the future,
which means they may not be entirely reliable

Probabilities are subjective and we need to consider their accuracy