Theme 3.3.3 Decision Trees Flashcards Preview

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Flashcards in Theme 3.3.3 Decision Trees Deck (9)
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1
Q

What is meant by a decision tree?

A

Decision trees are mathematical models (or techniques) that set out all the options available for managers when making a decision, plus the possible outcomes of those decisions

2
Q

What does a square mean on a decision tree diagram?

A

This is the decision to be made

3
Q

What does a circle mean on a decision tree diagram?

A

Choice or option?

4
Q

Where do you write the probability of the outcome?

A

You write the probability of the outcome under the outcome

5
Q

What is meant by the expected value?

A

The financial value of an outcome calculated by multiplying the estimated financial effect by its probability

6
Q

What is the expected value calculation

A

result x probability = expected value

7
Q

Three advantages of using decision trees

A
  • the diagram may highlight possibilities that had not previously been considered
  • they require numerical values to be placed upon decisions -
8
Q

Three advantages of using decision trees

A
  • the diagram may highlight possibilities that had not previously been considered
  • they require numerical values to be placed upon decisions -this tends to require research, and thus improves results
  • the method takes into account the risks involved in decisions, and makes decision-maker aware of them
9
Q

Five disadvantages of using decision trees

A
  • the probabilities used are often estimated
  • they do not take into account non-numerical factors e.g. legal constraints
  • time lags may make numerical data out of date
  • process can be quite time-consuming
  • diagrams can become unmanageable for complex decisions