FLORENTINA ANDRE YP52A

29114312

Decision trees and inuence diagrams

The process of constructing a decision tree is usually iterative, with many changes being
made to the original structure as the decision makers understanding of the problem develops.
Because the intention is to help the decision maker to think about the problem, very large and
complex trees, which are designed to represent every possible scenario which can occur, can
be counterproductive in many circumstances. Decision trees are models, and as such are
simplications of the real problem. The simplication is the very strength of the modeling
process because it fosters the understanding and insight which would be obscured by detail
and complexity. Inuence diagrams offer an alternative way of structuring a complex
decision problem and some analysts nd that people relate to them much more easily.
Constructing a decision tree
A square is used to represent a decision node and, because each branch emanating from this
node presents an option, the decision maker can choose which branch to follow. A circle, on
the other hand, is used to represent a chance node. The branches which stem from this sort of
node represent the possible outcomes of a given course of action and the branch which is
followed will be determined, not by the decision maker, but by circumstances which lie
beyond his or her control. The branches emanating from a circle are therefore labeled with
probabilities which represent the decision makers estimate of the probability that a particular
branch will be followed. Obviously, it is not sensible to attach probabilities to the branches
which stem from a square.
Determining the optimal policy
It can be seen that our decision tree consists of a set of policies. A policy is a plan of action
stating which option is to be chosen at each decision node that might be reached under that
policy. The technique for determining the optimal policy in a decision tree is known as the
rollback method. To apply this method, we analyze the tree from right to left by considering
the later decisions rst.
Decision trees and utility
The procedure for analyzing the tree when utilities are involved is exactly the same as that
which we used for the EMV criterion
Decision trees involving continuous probability distributions
In the decision problem we considered above there were only two possible outcomes for each
course of action, namely success and failure. However, in some problems the number of
possible outcomes may be very large or even innite
Practical applications of decision trees
A large number of applications of decision trees have been published over the years, and we
give below a summary of a few of these applications to show the variety of contexts where
the method has been successfully used.
Assessment of decision structure
Although Expected Utility may be an optimal decision principle there is no normative
technique for eliciting the structure of the decision problem from the decision maker. It is
really a matter of the decision analysts judgment as to whether the elicited tree is a fair
representation of the decision makers decision problem. Once a structure is agreed then the
computation of expected utility is fairly straightforward. Structuring is therefore a major
problem in decision analysis, for if the structuring is wrong then it is a necessary consequence
that assessments of utilities and probabilities may be inappropriate and the expected utility
computations may be invalid.
Eliciting decision tree representations

Inuence diagrams which are designed to summarize the dependencies that are seen to exist
among events and acts within a decision. Such dependencies may be mediated by the ow of
time, as we saw in our examples of decision trees. As we shall see, a close relationship exists
between inuence diagrams and the more familiar decision trees. Indeed, given certain
conditions, inuence diagrams can be converted to trees. The advantage of starting with
inuence diagrams is that their graphic representation is more appealing to the intuition of
decision makers who may be unfamiliar with decision technologies. In addition, inuence
diagrams are more easily revised and altered as the decision maker iterates with the decision
analyst. Decision trees, because of their strict temporal ordering of acts and events, need
completely respecifying when additional acts and events are inserted into preliminary
representations. We shall illustrate the applicability of inuence diagrams through a worked
example