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Decision Trees

Diagram. Decision nodes

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Decision Trees

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    1. Decision Trees in 30 minutes Anne Ku 15 September 2005

    2. Diagram Decision nodes & alternatives Chance nodes & probabilities Outcomes Expected values Rolling back Perfect and imperfect information

    3. Examples Decisions only - no uncertainty Uncertainties only - no decision Roll of dice, flip of a coin Imperfect information: test, sample, rumour, hire consultant Perfect information: perfect foresight, clairvoyant

    4. Expected Value Also known as weighted average (as all the probabilities add to one) Multiply each outcome of an uncertain alternative by its probability, then Add the results together Expected value criterion: choose the alternative with the highest or lowest expected value (depending on whether more is better, or less is better)

    5. Simple decision trees Surgery or medication example Which game to play? Tossing a die What to wear & weather changes Tutorial: how to build decision trees

    6. Flu Vaccine: introduce or not? A government committee is considering the economic benefits of a program of preventative flu vaccinations. If vaccinations are not introduced then the estimated cost to the government if flu strikes in the next year is £7m with probability 0.1, £10m with probability 0.3 and £15m with probability 0.6. It is estimated that such a program will cost £7m and that the probability of flu striking in the next year is 0.75.One alternative is to institute an "early-warning" monitoring scheme (costing £3m) which will help detect an outbreak of flu early and hence institute a rush vaccination program (costing £10m because of the need to vaccinate quickly before the outbreak spreads).

    7. R&D Funding GM was evaluating two competing technologies in their engine development program. One used a new type of coating (Project A), while the other incorporated a new material (Project B). Project A had been going on for some time when Project B was identified. While they could be researched simultaneously, the two technologies offered the same benefits and could not be implemented together. The decision alternatives were therefore:1. Continue with Project A only 2. Stop Project A and start Project B 3. Do both 4. Cease Project A and not do Project B.

    8. Applications Medical, healthcare, pharmaceutical Energy Business Manufacturing Litigation: sue, claim, mediation R&D investment Drug research Drilling for oil Product planning Product development Capacity planning Applying for a job, graduate school, project proposal EXAMPLES

    9. Exercises Draw a decision tree at the time when you were applying to get into college. Which colleges did you apply? What were your chances? Assign values. Draw a decision tree for job hunting Draw a decision tree for choosing a date Draw a decision tree for travelling

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