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MATH540 Discussion 1

MATH540 Discussion 1

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The main parts of a decision tree are:

Decision: These are represented by squares. This is the starting point of the decision tree. The

decision to be analyzed forms this part; it has two arcs and options.

Sequence of events: These are represented by circle node and arcs and events, it provides

different probabilities for different events which have originated from the decision node.

Consequences: These are represented by triangles and give the result of the decision that has

been analyzed; the consequence sum of probabilities adds up to one.

Benefits of decision trees:

These are used for identifying a strategy that is most likely to reach the goal by modeling

decisions and probable outcomes; they can be used to display the rationale behind a decision in a

way to let others see better where the factors come to play. Decision trees are easy to understand

and interpret as even without data decision trees can describe decision situations and their

probabilities or desired outcomes.

In what way can decision trees be used in business decision making?

Almost all businesses face uncertainty at some point or other. In such situation decision trees are

used to select the best course of action. When businesses face unknown that seem to make it

impossible to choose the right option with any certainty, the decision tree comes to rescue of

managers. Although the manager does not know the result of the unknown, he would generally

have an idea on possible outcomes and how likely each would be to occur. This information can

be used to select the option that is most likely to yield a favorable result. Decision trees make

this type of analysis in a business scenario easy. Decision tree provides a credible perspective for

upper management; they help them form a balanced picture of the risks and rewards associated

with each possible course of action.

Real-world examples:

(a) Gerber Products, the well-known baby products company, recently used decision tree

analysis in deciding whether to continue using the plastic known as poly-vinyl chloride or more

commonly, PVC. The situation involved a number of organizations including the environmental

group Greenpeace, the U.S. Consumer Products Safety Commission, the toy and plastics

industries, and the general public.

(b) Another example, a manufacturer can use decision tree to decide how much inventory to

build before knowing precisely what the demand would be.

treatment decisions about individual patients.

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The main parts of a decision tree are: Decision: These are represented by squares. This is the starting point of the decision tree. The decision to be analyzed forms this part; it has two arcs and options. Sequence of events: These are represented by circle node and arcs and events, it provides different probabilities for different events which have originated from the decision node. Consequences: These are represented by triangles and give the result of the decision that has been analyzed; the consequence sum of probabilities adds up to one. Benefits of decision trees: These are used for iden ...
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