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

Decision Tree

Decision Node

Decision nodes (green squares) indicate a time when a decision has to be made. In our example the decision is whether to bet or not. If we bet we incur a payment of $5 (cell B4) otherwise it costs us nothing (cell B10). The Boolean value in cell B9 is set to TRUE meaning that the Don't bet branch is the most appealing one according to the EMV criteria, and the green value in cell B8 shows the payoff value, which corresponds to the payoff of the branch with the highest expected value.

Decision Tree Software for Business and Management Model Making

The node above indicates we either bet $5 or don't bet at all. Given that this event implies a negative return, DTree identifies the lower branch, Dont bet, as the option that maximizes the payoff and the Boolean value in cell B9 is set to TRUE. This is a very reasonable suggestion according to the very low probability of success implied with the bet. On the other side, if we were to choose among projects that had a cost for us, we would have minimized the path and DTree would have identified the opposite branch as true.

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