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Decision analysis by decision tree

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  • King, JR

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.

Suggested Citation

  • King, JR, 1973. "Decision analysis by decision tree," Omega, Elsevier, vol. 1(1), pages 79-105, February.
    • Handle: RePEc:eee:jomega:v:1:y:1973:i:1:p:79-105
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    1. Luca Urciuoli & Juha Hintsa, 2021. "Can digital ecosystems mitigate risks in sea transport operations? Estimating benefits for supply chain stakeholders," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 23(2), pages 237-267, June.

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