Decision Tree

 Decision Tree assigns cost, probabilities and value of decision options to come up with best decision 

Ex., you need to conduct party : Decision is outdoor / indoor

Now there is probability of rains - 

What to do? 

Use the decision tree approach : as below and create the choice - chance table

That will help you come up with the optimum decision;

For more details : read this article :https://hbr.org/1964/07/decision-trees-for-decision-making

This tool is particularly useful : for future outcomes for which the cost decision has to be made today!

Pay-off table:

Decision	Probability of Occurrence	Risk/ reward	Expected Outcome
A	.2	$1000	= .2*($1000)+ .8* (-$ 600) = ($280)
	.8	($600)

B	.5	$1000	= .2*($1000)+ .5* (-$ 600) = $300
	.5	($600)

                    

Which decision will you go with? A or B? and Why?