Introduction to Decision Trees: Basic Structure and Characteristics

This video introduces decision trees, a tool used by businesses to evaluate potential outcomes of decisions. It explains the structure of decision trees, including decision and chance nodes, and how they help in assessing investment decisions. The video also covers the importance of probabilities and opportunity costs in decision making. Finally, it outlines the basic features of decision trees and sets the stage for constructing them in future videos.

Why do businesses use decision trees?

• To predict future stock prices

• To design marketing strategies

• To analyze potential outcomes of decisions

• To calculate employee salaries

What do the roots of a decision tree represent?

• The monetary impacts

• The opportunity cost

• The decision problem

• The final outcomes

What symbol is used to represent a decision node in a decision tree?

• A star

• A triangle

• A square

• A circle

What does a chance node in a decision tree signify?

• A financial cost

• A certain outcome

• A decision problem

• An uncertain outcome

How are probabilities used in decision trees?

• To assign likelihoods to chance events

• To determine the cost of decisions

• To predict market trends

• To calculate employee bonuses

What does the opportunity cost represent in decision trees?

• The initial investment

• The next best alternative sacrificed

• The final outcome

• The total revenue

How is the opportunity cost depicted in a decision tree?

• By using a different color for each branch

• By highlighting the chosen branch

• By marking the root of the tree

• By drawing a red line through unchosen branches