Part 2. MM4XL Tools > 1. Strategic Tools > Decision Tree > 3. Anatomy of a Decision Tree > 2. Decision Trees > Decision Trees

Decision Tree

Decision Trees

Decision or probabilistic trees are made of a graphic structure and of formulae. Details about the latter can be found later in the Technicalities section. There are three classes of graphic elements in a DTree:

  • The tree root
  • Tree nodes
  • Node branches

Let us use an example for the sake of explanation. The tree below analyzes the decision whether to bet $5 at the horse races. There is a 1% probability of winning $100 or losing all. When maximizing the expected value criteria, one would expect the gambler to lose $4 in the long run (cell C4), so betting in this instance is not a value maximizing decision.

The tree root is essentially a label that shows the main idea of the project. It can be modified, as any other label in the tree, by clicking on it and entering the desired text label in the window that appears.

Decision Tree Software for Business and Management Model Making

The tree root, cell A7 in the picture above, is the place to click on to determine what kind of tree to draw. There are three options to choose from: Maximize, Minimize, and Multiply. The example above refers to the case when the expected monetary value (EMV) is maximized.

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