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Decision Tree Analysis

Decision tree analysis is used to break down complex problems or branches into a tree-shaped diagram with possible outcomes at each branch. The tree structure helps analyze complex problems across fields like corporate finance, philosophy, and economic forecasting. Managers use decision trees to graphically display information and potential probabilities for a project's final outcome. For example, a decision tree could model a project with three alternatives of different sizes and the probabilities associated with each alternative.

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Ravi Satyapal
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250 views2 pages

Decision Tree Analysis

Decision tree analysis is used to break down complex problems or branches into a tree-shaped diagram with possible outcomes at each branch. The tree structure helps analyze complex problems across fields like corporate finance, philosophy, and economic forecasting. Managers use decision trees to graphically display information and potential probabilities for a project's final outcome. For example, a decision tree could model a project with three alternatives of different sizes and the probabilities associated with each alternative.

Uploaded by

Ravi Satyapal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Decision tree analysis:

Decision tree analysis involves making a tree-shaped diagram to chart out a


course of action or a statistical probability analysis. It is used to break down
complex problems or branches. Each branch of the decision tree could be a
possible outcome.

 The tree structure in the decision model helps in drawing a conclusion for any
problem which is more complex in nature. The model is used not just in corporate
finance, but in philosophy, economic forecasting as well.

Under the decision tree model, an individual has to come to a conclusion about
investing in a particular project or not. The management often use these models
because they lay out the information in a graphical way with possible probabilities
attached to the final outcome.

Ex. Decision tree model for a project of complex with 3 alternatives small.
Medium and large size
Differentiate between AHP and decision tree analysis

1. AHP is the mathematical model for determining the decision among the
different alternatives of a project or business, while Decision tree is a
graphical model
2. AHP involves complex calculation of relative probability of alternatives
while Decision tree involves probability associated with alternatives and
decision is taken on the basis of Expected value of the different
alternatives.
3. . In AHP relative probability and priority vectors are determined
mathematically and their consistency is also checked and then decision
is made, while in decision tree based on the approaches like optimistic,
conservative etc decisions are taken considering different scenario or
economic conditions.

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