lect20- Decision tree

lect20- Decision tree - ISE 460 Engineering Economy...

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Click to edit Master subtitle style 12/1/10 ISE 460: Engineering Economy “Decision Tree Analysis for University of Southern California Fall 2010 Joseph Chow Week 13: Lecture 20
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12/1/10 HW Schedule Summary 12/1/10 22 HW #7, due 11/19/10 Lecture 16 7.1 7.2 Lecture 18 7.3 Lecture 19 7.4 HW #8, due 12/3/10 Lecture 20 8.1 8.2 Lecture 21 8.3 8.4
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12/1/10 Review Prior Deterministic methods of economic analysis Sensitivity analysis, breakeven analysis Random variables and simulation This Week Decision Tree Analysis for Sequential Project Evaluation Real Options (I’ve scanned in Chapter 13) 12/1/10 33
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12/1/10 Last Week… How to obtain NPW pdf/cdf as a simple function of random variables Know what kind of questions can be answered with the result Evaluate random NPWs based on Pareto optimality We introduced a numerical method that takes advantage of computational power to solve 44
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12/1/10 Static Decision-making Up to now, all the problems involve single decision in time, e.g. invest or not? How about – sequential decision- making? Invest phase 1 now or not, and if event 1 occurs, invest in phase 2 or not, etc. etc. 55
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12/1/10 Sequential Decision- Making 66
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12/1/10 RECALL: Tree Diagrams P(A’|B’) 77 P(B) = .6 P(A|B) P(A| B’) What is P(A’|B’)?
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