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

Author

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  • Pedro Cortesao Godinho
  • Joao Paulo Costa

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.

Suggested Citation

  • Pedro Cortesao Godinho & Joao Paulo Costa, 2002. "A note on the use of bicriteria decision trees in capital budgeting," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 4(1), pages 147-158.
    • Handle: RePEc:ids:gbusec:v:4:y:2002:i:1:p:147-158
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    Cited by:

    1. Pedro Godinho & João Paulo Costa, 2004. "The Use of Cost and Time in Project Decision Trees: A model and an application," Notas Económicas, Faculty of Economics, University of Coimbra, issue 20, pages 145-161, December.

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