S0luti0n

The idecisi0n itree if0r ithe ipr0blem iis ish0wn ibel0w.

Bel0w iwe icarry i0ut istep i1 i0f ithe idecisi0n itree is0luti0n ipr0cedure iwhich i(f0r
ithis iexample) iinv0lves iw0rking i0ut ithe it0tal ipr0fit if0r ieach i0f ithe ipaths ifr0m
ithe iinitial in0de it0 ithe iterminal in0des.

Step i1

 path it0 iterminal in0de i9 i- iwe icarry i0ut in0 ipr0gram iand iflu id0es in0t
istrike

T0tal irevenue i= i0

T0tal ic0st i= i0

T0tal ipr0fit i= i0

 path it0 iterminal in0de i10 i- iwe icarry i0ut in0 ipr0gram iand iflu istrikes
ic0sting ithe ig0vernment i£7m

T0tal irevenue i= i0

T0tal ic0st i= i7

T0tal ipr0fit i= i-7 i(all ifigures iin i£m)

 path it0 iterminal in0des i11 iand i12 isimilar it0 ithe icase iab0ve igiving ia it0tal
ipr0fit i0f i-10 iand i-15 irespectively
 path it0 iterminal in0de i13 i- iwe icarry i0ut ia ipr0gram ic0sting i£7m iand iflu
id0es in0t istrike

T0tal irevenue i= i0

T0tal ic0st i= i7

T0tal ipr0fit i= i-7

 path it0 iterminal in0de i14 i- iwe icarry i0ut ia ipr0gram ic0sting i£7m iand iflu
istrikes. iN0w iwe iw0uld ihave il0st i£7m iwith ithis iflu i0utbreak ibut ibecause
i0f ithe ipr0gram i(which iwe iassume it0 ibe i100% ieffective) iwe id0 in0t.

The ikey ihere iis it0 iregard ithe i£7m ipaid if0r ithe ipr0gram ias i"insurance" iwhich
ireimburses ithe ig0vernment if0r iwhatever il0sses iare isuffered ias ia iresult i0f iflu
istriking. iHence iwe ihave

T0tal irevenue i= i7 i(reimbursement)

T0tal ic0st i= i7 i(c0st i0f ipr0gram) i+ i7 i(l0ss idue it0 iflu istriking)
T0tal ipr0fit i= i-7

It iis iclear ifr0m ithe iab0ve icalculati0n ithat isince i(in ithis icase) ithe
ireimbursement ialways iexactly iequals ithe iam0unt il0st ithe it0tal ipr0fit iwill ijust
ibe ithe ic0st i0f ithe i"insurance" i(-£7m).

The isituati0n iwith ithe ivaccinati0n ipr0gram iis ivery isimilar it0 ih0useh0ld
iinsurance iwhere ia isingle ipayment iguarantees ireplacement i0f iany il0sses
isuffered. iWhatever ihappens ithe ieffect i0f ithe iinsurance iwill ibe i"as iif" in0thing
ihad i0ccurred. iUnder ithese icircumstances ithe i0nly iexpense i(in ieffect) iis ithe
ic0st i0f ithe iinsurance.

 path it0 iterminal in0des i15 iand i16 isimilar it0 ithe icase iab0ve iwhere iwe
icarry i0ut ia ipr0gram ic0sting i£7m iand ithis iinsures ius iagainst il0sses.
iHence

T0tal ipr0fit i= i-7 iterminal in0de i15

T0tal ipr0fit i= i-7 iterminal in0de i16

 path it0 iterminal in0de i17 i- iwe icarry i0ut ian iearly iwarning ipr0gram
ic0sting i£3m iand iflu id0es in0t istrike igiving

T0tal irevenue i= i0

T0tal ic0st i= i3

T0tal ipr0fit i= i-3

 path it0 iterminal in0des i18, i19 iand i20 i- iwe icarry i0ut ian iearly iwarning
ipr0gram ic0sting i£3m, iflu istrikes iand iwe idecide it0 ivaccinate ic0sting
i£10m. iHence if0r ia it0tal ic0st i0f i£13m iwe iare iinsured iagainst il0sses is0
ithat iwe ihave

T0tal ipr0fit i= i-13 iterminal in0de i18

T0tal ipr0fit i= i-13 iterminal in0de i19

T0tal ipr0fit i= i-13 iterminal in0de i20

 path it0 iterminal in0des i21, i22 iand i23 i- iwe icarry i0ut ian iearly iwarning
ipr0gram ic0sting i£3m, iflu istrikes ibut iwe idecide in0t it0 ivaccinate, ileading
it0 ic0sts i0f i£7m, i£10m iand i£15m. iHence

T0tal ipr0fit i= i-10 iterminal in0de i21

T0tal ipr0fit i= i-13 iterminal in0de i22

T0tal ipr0fit i= i-18 iterminal in0de i23

Hence iwe ican if0rm ithe itable ibel0w iindicating if0r ieach ibranch ithe it0tal ipr0fit
iinv0lved iin ithat ibranch ifr0m ithe iinitial in0de it0 ithe iterminal in0de.

Terminal Node Total Profit ((£m)

9 0
10 -7
11 -10
12 -15
13 -7
14 -7
15 -7
16 -7
17 -3
18 -13
19 -13
20 -13
21 -10
22 -13
23 -18

We ican in0w icarry i0ut ithe isec0nd istep i0f ithe idecisi0n itree is0luti0n ipr0cedure
iwhere iwe iw0rk ifr0m ithe iright-hand iside i0f ithe idiagram iback it0 ithe ileft-hand
iside.

Step i2

C0nsider ichance in0de i2 i(with ibranches it0 iterminal in0des i10, i11 iand i12
iemanating ifr0m iit). iThe iexpected im0netary ivalue i(EMV) if0r ithis ichance in0de
iis igiven iby i0.1 ix i(-7) i+ i0.3 ix i(-10) i+ i0.6 ix i(-15) i= i-12.7

Hence ithe iEMV if0r ichance in0de i1 iis igiven iby i0.25 ix i(0) i+ i0.75 ix i(-12.7) i= i-
9.525

Similarly ithe iEMV if0r ichance in0de i7 iis igiven iby i0.1 ix i(-7) i+ i0.3 ix i(-7) i+ i0.6
ix i(-7) i= i-7

which ileads it0 ian iEMV if0r ichance in0de i3 i0f i0.25 ix i(-7) i+ i0.75 ix i(-7) i= i-7
The iEMV if0r ichance in0de i8 iis i0.1 ix i(-13) i+ i0.3 ix i(-13) i+ i0.6 ix i(-13) i= i-13
and ithe iEMV if0r ichance in0de i6 iis i0.1 ix i(-10) i+ i0.3 ix i(-13) i+ i0.6 ix i(-18) i= i-
15.7

Hence if0r idecisi0n in0de i5 iwe ihave ithe itw0 ialternatives:

(4) ivaccinate iEMV i= i-13

(5) in0 ivaccinati0n iEMV i= i-15.7

Hence ithe ibest ialternative ihere iis it0 ivaccinate i(alternative i4) iwith ian iEMV i0f
i-13.

The iEMV if0r ichance in0de i4 iis itheref0re i0.25 ix i(-3) i+ i0.75 ix i(-13) i= i-10.5

and iat ithe iinitial idecisi0n in0de i(n0de i0) iwe ihave ithe ithree ialternatives:

(1) in0 ipr0gram iEMV i= i-9.525

(2) ipr0gram iEMV i= i-7

(3) iearly iwarning iEMV i= i-10.5

Hence ithe ibest ialternative iis ialternative i2, iinstitute ia ipr0gram ic0sting i£7m,
ileading it0 ian iEMV i0f i-£7m.

N0te ihere ithat iit iis iclear ithat ithe ic0ncept i0f ithe ivaccinati0n ipr0gram ibeing ian
iinsurance iagainst iall ip0ssible il0sses ic0uld ihave ienabled ius it0 ihave idrawn ia
imuch isimpler idecisi0n itree i(e.g. ichance in0de i3 ic0uld ibe itransf0rmed iint0 ia
i"terminal" in0de i0f ic0st i-£7m iand in0des i7,13,14,15 idr0pped ialt0gether
i(similarly if0r in0des i8,18,19,20)). iH0wever, if0r iclarity, iwe ihave ipresented ithe
idecisi0n itree ias igiven iab0ve.

Group 5

Vipul Tuteja (PGMA1947)

Akhil Kumar Thakur (PGMA1908)

Sandeep Singh (PGMA1958)

Raghav Gupta (PGMA1924)

Ulhas Garje (PGMA1940)