3.2.2 Decision Trees

What does a decision tree combine in its analysis?

• Probability and Expected Pay-Off

• Cost and Revenue

• Risk and Reward

• Time and Effort

How is probability usually expressed in decision trees?

• As a percentage

• As a fraction

• As a decimal

• As a whole number

What does the expected value (EV) of an outcome represent?

What does a square represent in a decision tree?

• An alternative outcome

• A decision point

• A probability

• A pay-off

What is the first step managers take when creating a decision tree?

• Calculate the expected value (EV)

• Identify which courses of action are open to the business

• Assign probabilities to outcomes

• Choose the course of action with the highest net gain

What is the net gain formula in decision tree analysis?

What does a circle show in a decision tree?

• A decision point

• An alternative outcome

• A probability

• A pay-off

What should managers usually choose in a decision tree analysis?

• The course of action with the highest cost

• The course of action with the highest probability

• The course of action with the highest net gain

• The course of action with the lowest risk

Which of the following is an advantage of decision trees?

• They are based on qualitative data.

• They ignore numerical data.

• They provide a visual representation of potential outcomes.

• They are always accurate in predicting outcomes.

What is a disadvantage of decision trees?

• They consider qualitative data.

• They are based on quantitative data.

• They are always accurate.

• They do not require numerical values.