DA3-DT - Decision Making under Uncertainty Decision Trees...

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1 1 Decision Trees UGBA 143 Game Theory and Business Decisions 2 Decision Making under Uncertainty So far: situations involving a single decision Practical business scenarios: Multiple choices: Happen at different points in time Inter-related: Future prospects depend on the present How to deal with sequential decisions over time? Analytic tool: Decision trees 3 Overview Decision Trees: Displaying Alternatives Adding Data Choosing Course of Action 4 Displaying Alternatives Cocktail party scenario Decision: Outdoors or Indoors? Event: Rain or Shine? Payoffs: Outdoors / Rain: disaster Outdoors / Shine: ultimate happiness Indoors / Rain: relief Indoors / Shine: regret 5 Displaying Alternatives Decision tree representation: Decision nodes (squares) Chance nodes (circles) Sequence of decisions / events arranged in chronological order from left to right Useful to show the routes by which the various outcomes are achieved Associated with each complete course through the tree is an outcome (shown at rightmost end) 6 ABC Chemical Industries, Ltd.
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