3.3.3 Decision Trees

Question 1

Decision Trees

Answer 1

Mathematical models that set out the options available for managers when making decisions and the possible outcomes of these decisions.

Question 2

Advantages of Decision Trees

Answer 2

+ Helps to assess risk involved in decision.
+ Clear decision making pathway.

Question 3

Limitations of Decision Trees

Answer 3

• Estimates.
• External factors such as economy may change the result of probabilities over time.
• Bias when calculating probabilities.
• Expected value won’t actually happen, actual value will be higher or lower.
• Quantitative technique.