Optimization over a collection of decision trees with three-valued outcomes

Lonnie Turpin (), Matiur Rahman () and Alberto Marquez ()
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Lonnie Turpin: McNeese State University
Matiur Rahman: McNeese State University
Alberto Marquez: Lamar University

Economics Bulletin, 2016, vol. 36, issue 4, 1959-1965

Abstract: This note considers decision trees with three-valued outcomes. The structure of the trees are represented in a familiar form, allowing for actions and states of nature where the states of nature are associated with objective probabilities. We discuss the partitioning of trees by path enumeration, and present a simple formula for calculating the probabilities of outcomes. Finally, we construct a linear programming model to optimize over the given probabilities to select the optimal partition tree representing the collection of actions that minimizes the potential for loss.

JEL-codes: C6 (search for similar items in EconPapers)
Date: 2016-11-09
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