8 Decision trees

==decision trees== - diagrams that set out all options available when making a decision and an estimate of the likelihood of it occurring

helps decide whether the net gain from a decision is worth it.

square shows the decision that needs to be made

the lines from the square shows the choices/ options and option to do nothing

circles = uncertain out comes

and then liners after circle are the possible outcomes

then there is the probabilities of the probability of the result and then result.

process-

• add possible outcomes to the tree
• then add costs, outcome probabilities and financial results for each.
• probability- percentage chance that event will occur
• if all outcomes of an event are c considered, the total probability must add up to one.
• ==expected value== - financial result times by the probabiliy
• ==net gain-== adding the expected value and misusing the costs with the decision

important to not use decision tress to justify a decision but to aid the decision making process.