DA5-VOI - Decision Trees Overview Displaying Alternatives...

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1 1 Value of Information UGBA 143 Game Theory and Business Decisions 2 Decision Trees - Overview Displaying Alternatives Adding Data Choosing Course of Action Using New Information 3 V-Haul Moving Company Decision: dispatch small truck ($120) or large truck ($200) ? 60% of households have a lot of stuff (i.e. require large truck), 40% needs only small truck Not known at time of dispatch If a small truck is sent to a large household: - large truck will have to be sent later - penalty cost $80 (i.e. total cost = $400) What should V-Haul do? 4 V-Haul Collects Perfect Information Suppose that now, V-Haul collects information (i.e. whether the household is large/small) beforehand How does the new decision tree look like? How much is V-Haul willing to pay for this information? 5 Ordering of Nodes in Decision Trees Having the correct order of chance nodes and decision nodes is very important In a decision tree, at each decision node, the decision-maker (DM) is completely aware of all previous outcomes
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