What other applications, problems or opportunities could you use a decision tree to solve?

One of the many ways in decision analysis to solve for an optimal solution is through a State of Nature Decision Tree. Decision trees provide a graphical representation of the decision making process. A decision tree will show a natural or logical progression that will occur over time. Thus, the decision tree allows us to see the potential outcome of multiple alternative decisions that we can make for a particular problem or opportunity.

The decision tree is easily developed from a payoff table and one is provided to you below for this assignment.

The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature.

Assignment Questions

Construct a decision tree for this problem.

If the decision maker knows nothing about the probabilities of the three states of nature, what is the recommended decision using optimistic, conservative, and minimax regret approaches?

What other applications, problems or opportunities could you use a decision tree to solve? Provide at least two examples with detail of how you would set up the decision trees.

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