decision trees Flashcards
1
Q
what does a square represent
A
a decision
2
Q
what does a circle represent
A
a chance event
3
Q
advantages of decision trees
A
- allows uncertainty
- demands managers to consider all possible outcomes
- shows the average expected values for each decision + sets out the probability of a specific outcome
4
Q
disadvantages of decision trees
A
- difficult to get meaningful data
- easy to do a biased approach to the estimated probabilities to get a pre-desired result rather than a logically determined outcome
- doesn’t take in the variability of the business environment
5
Q
actual values
A
forecast of the net cash flow -> shown at ends of branches of the tree
6
Q
expected values
A
forecast actual values x by the probability of their occurrence
7
Q
net gains
A
expected value - initial outlay
8
Q
probability
A
likelihood of something occurring
