2.2d - Decision Trees Flashcards
1
Q
Decision tree definition
A
A model of the options available in a decision
2
Q
Expected value formula
A
Probability X expected pay-off
3
Q
Net gain formula
A
EV - initial cost
4
Q
What do squares represent in decision trees?
A
Decisions
5
Q
What do circles represent in decision trees?
A
Uncertain outcomes
6
Q
Advantages of decision trees:
A
- Sets out the problem clearly
- Considers opportunity costs
- Allows comparisons to be made
7
Q
Disadvantages of decision trees:
A
- Difficult to get accurate data
- Estimates may be unreliable
- Data may be historical
- Doesn’t include qualitative factors
8
Q
Strategic decision definition
A
Decisions concerned with the general direction of the business
9
Q
Tactical decision definition
A
Decisions concerned with specific areas or functions
