A note on the use of bicriteria decision trees in capital budgeting

Pedro Godinho (pgodinho@fe.uc.pt) and João Costa

Global Business and Economics Review, 2002, vol. 4, issue 1, 147-158

Abstract: A new approach for the use of decision trees in capital budgeting is presented. It is argued that the use of criteria other than the financial value, particularly time, may often make sense in the assessment of investment projects, and an approach for the use of time and financial value in bicriteria decision trees is defined. The approach focuses on the identification of non-dominated strategies and uses a discrete-time option valuation model to aggregate the financial value. A methodology based on the elicitation of a few certainty equivalent times is used to aggregate time. An illustration example of application of this approach is also presented.

Keywords: bicriteria decision trees; capital budgeting; investment projects; evaluation; time; financial value; option valuation model (search for similar items in EconPapers)
Date: 2002
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