2.2 Decision Making Flashcards
1
Q
What is a decision tree
A
Mathematical model that represents the likely outcomes for a business of a number of courses of action on a diagram showing the financial consequences of each
2
Q
Expected value and formula
A
Financial outcomes from a specific course of action adjusted to allow for the probability of it occurring
Probability x financial result
3
Q
Net gains
A
Expected value - costs
4
Q
What is opportunity cost
A
Idea that money or time spent doing one thing means missing out on doing something else
5
Q
What is risk vs reward
A
The probability of a negative vs a positive outcome
