Decision trees are used to graphically depict a decision making situation. Propo

Question

Decision trees are used to graphically depict a decision making situation. Propose a business decision in which you intend to use Expected Monetary Value (EMV) as your decision making technique. Describe how you would determine the best decision using the EMV criterion with a decision tree.(If you have no experience with this type of thing, then try to imagine a situation in which EMV and Decision Trees could be used and propose an example).

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Explanation / Answer

Answer :

Using the EMV criterion with a decision tree involves starting at the terminal branches of the tree and working toward the origin, computing expected monetary values and selecting the best alternatives. The EMVs are found by multiplying the probabilities of the states of nature by the economic consequences and summing the results for each alternative. At each decision point, the best alternative is selected.

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