Decision Trees are an analytical approach to calculate the right path when there are sequential and contingent decisions to be taken.
When is it useful?
How do you do the analysis?
- Alternative choices are identified and then blown out to as much detail as possible, maybe under different market scenarios.
- The value of each branch of the tree can be estimated and a probability assigned to that branch.
- The probability-weighted value of each alternative choice can then be assessed and the most attractive option chosen.
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How can you adapt this concept?