COMMERCE 3QA3 Lecture 4: Lecture 22-27 Ch 8 part 2
17 Nov 2017
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5iii) decision making under risk 2 stages: decision trees. The manager can list the possible future outcomes and can estimate the probability that a specific outcome will occur. Two or more decisions are made; usually at different times (or stages). A decision tree is needed to depict and analyze the problem. One of three decision- making criteria is used to make a decision: emv, eol, eu. Evpi = evwpi best emv = 110k 86k = ,000. Although this is a one stage problem (i. e. one decision at one point of time) and, therefore, we use a payoff table (as shown), we can also draw a decision tree for this problem. Decision trees: draw the tree: any decision analysis problem can be presented graphically as a decision tree. A decision tree presents the decision alternatives and future outcomes in a sequential (i. e. time) manner using decision nodes with arcs, outcome nodes with arcs, and end nodes with payoffs.
