Decision Tree
A quantitative decision-making tool that maps out possible options, their probabilities, and expected outcomes in a tree...
Formula
Expected Value = Σ (Outcome Value × Probability)
Real World
Innocent Drinks used decision-tree-style analysis when deciding whether to launch a new smoothie range, weighing the probability of strong versus weak consumer uptake against forecast revenues.
Exam Focus
Always subtract the cost of the decision node before stating net expected value — omitting this is the single most common decision tree error.
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