Decision TreesDecision Trees

Jennifer TsayJennifer Tsay

CS 157BCS 157B

February 4, 2010February 4, 2010

What is a Decision Tree?What is a Decision Tree?

Formal, structured Formal, structured approach to making approach to making decisionsdecisions

Visual Visual representation of a representation of a problem and its problem and its alternative solutionsalternative solutions

Helps decompose a Helps decompose a complex problem complex problem into smaller, more into smaller, more manageable tasksmanageable tasks

Why Bother?Why Bother?

Decision trees can help select the most Decision trees can help select the most favorable option using the favorable option using the probability probability of of each outcome and the resulting business each outcome and the resulting business valuevalue of these outcomes of these outcomes

Form accurate, balanced picture of risks Form accurate, balanced picture of risks and rewards of a particular choiceand rewards of a particular choice

Advantages of Decision TreesAdvantages of Decision Trees

Simple to understand and interpretSimple to understand and interpret Have value even with little hard dataHave value even with little hard data Can be combined with other decision Can be combined with other decision

techniquestechniques

What Are They Used For?What Are They Used For?

Used in situations of uncertaintyUsed in situations of uncertainty

Commonly used in decision analysis Commonly used in decision analysis to help identify an ideal strategy to to help identify an ideal strategy to reach a goalreach a goal

BusinessBusiness

EconomicsEconomics

Public HealthPublic Health

Example Decision TreesExample Decision Trees

Creating a Decision TreeCreating a Decision Tree

Decision Trees consist of nodes and Decision Trees consist of nodes and branchesbranches

Typically three types of nodes:Typically three types of nodes:1.1. Decision node that represents the decision to Decision node that represents the decision to

be made be made Branches extending out from these decision nodes are Branches extending out from these decision nodes are

alternativesalternatives

2.2. Chance nodeChance node Branches extending out from these chance nodes have some Branches extending out from these chance nodes have some

degree of uncertainty about their likelihood of occurrencedegree of uncertainty about their likelihood of occurrence

3. 3. End nodeEnd node

Creating a Decision TreeCreating a Decision Tree

All possible alternatives are mapped out All possible alternatives are mapped out as paths within the decision treeas paths within the decision tree

Probabilities, based on past experience or Probabilities, based on past experience or an educated guess, are identified along an educated guess, are identified along each of these pathseach of these paths

Value of outcome is placed at end of each Value of outcome is placed at end of each branchbranch

Examining a Decision TreeExamining a Decision Tree

How to Make the Right DecisionHow to Make the Right Decision

Add up the values associated with each Add up the values associated with each branchbranch

Path with highest value is the optimal Path with highest value is the optimal decisiondecision

But Always Remember…But Always Remember…

Although a decision tree can help you Although a decision tree can help you make optimal choices for you to reach a make optimal choices for you to reach a particular goal, you must still weigh in particular goal, you must still weigh in common sense and consider others’ common sense and consider others’ opinionsopinions

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