Decision Trees

Question 1

How do Decision trees use Probability to work out the probobable outcomes of a decision?

Answer 1

• Managers may not know the probability of an outcome so they use subjective estimates based on experience or data to find the probability.
• Probabilities of outcomes from a decion must eual one and are written asa deciaml.

Question 2

What is the expected value of a decsion tree?

Answer 2

The probability of an outcome occuring

Question 3

What is the Expected value (ev) and how do you find it?

Answer 3

The probability of an outcome occuring jsdnjndmsaskcacmdlkasmlckdc

Question 4

What are the advantages of a decison tree?

Answer 4

• It maeks managers work out the probability and potential pay off instead of vague statemetns of the possible result of n action
• Visual representation, easy to analyse
• Allows mangaers to compare options quantitatively and objectivley rather than on a hunch or the option the thought of.
• Useful in familair situations where bueinses have enough experince and data to make accuarte probabilities

Question 5

what are the Disadvanategs of a decision tree?

Answer 5

• Only show quantitavie data not qualitiative data such as employees opinions whihc are important to the firm and can effect the perfomance of the firm
• Probabailities are hard to predidct accuartly
• Estimated pay offs may not be accuarte as in real life it may be different
• Data may be wrong or old making the decsion flawed
• Does not show wide range of outcomes, may not show the long term and short term effects.