Decision analysis by decision tree

King, JR

Omega, 1973, vol. 1, issue 1, 79-105

Abstract: The process of decision analysis by decision tree for any decision maker may essentially be summarized as follows: 1. (a) Form the decision tree for the problem;2. (b) Quantify your judgement by assigning subjective probabilities to the possible outcomes in the decision tree;3. (c) Quantify your monetary preference by determining your preference function curve;4. (d) Replace the monetary consequences of the possible outcomes in the decision tree by their corresponding preference values;5. (e) Expect out, fold back and prune the decision tree to determine the decision to be made. This process, which is described in the paper, enables complex decision problems to be formulated and solved in a logical manner, consistent with the stated beliefs of the decision maker in relation to his attitude to uncertainty and risk, expressed in quantitative terms. A simple numerical example is used to illustrate how the decision analysis technique can be applied in practice.

Date: 1973
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