decision tree

(redirected from Decision-tree)
Also found in: Dictionary, Medical, Encyclopedia.
Related to Decision-tree: Decision node

Decision tree

Schematic way of representing alternative sequential decisions and the possible outcomes from these decisions.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Decision Tree

In risk analysis, a diagram of decisions and their potential consequences. It is used to help determine the most straightforward (and cheapest) way to arrive at a stated goal. It is represented by potential decisions (drawn as squares), branching off into different proximate consequences (drawn as circles), and potential end results (drawn as triangles).
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
Fig.32 Decision tree. The businessman has two options: to open a new factory to boost production capacity or not to open a new factory; and he has to consider two states of nature or events which can occur economic boom or recession. The businessman must assess the likelihood of each of these events occurring and, in this case, based on his knowledge and experience, he estimates that there is a one-in-two chance of a boom and a 0.5 probability of a recession. Finally, the businessman estimates the financial consequences as an £80,000 profit for the new factory if there is a boom, and a £30,000 loss if there is a recession.click for a larger image
Fig.32 Decision tree. The businessman has two options: to open a new factory to boost production capacity or not to open a new factory; and he has to consider two states of nature or events which can occur economic boom or recession. The businessman must assess the likelihood of each of these events occurring and, in this case, based on his knowledge and experience, he estimates that there is a one-in-two chance of a boom and a 0.5 probability of a recession. Finally, the businessman estimates the financial consequences as an £80,000 profit for the new factory if there is a boom, and a £30,000 loss if there is a recession.

decision tree

an aid to decision-making in uncertain conditions, that sets out alternative courses of action and the financial consequences of each alternative, and assigns subjective probabilities to the likelihood of future events occurring. For, example, a firm thinking of opening a new factory the success of which will depend upon consumer spending (and thus the state of the economy) would have a decision tree like Fig. 32.

In order to make a decision, the manager needs a decision criterion to enable him to choose which he regards as the best of the alternatives and, since these choices involve an element of risk, we therefore need to know something about his attitudes to risk. If the manager were neutral in his attitude to risk then we could calculate the certainty equivalent of the ‘open factory’ alternative using the expected money value criterion, which takes the financial consequence of each outcome and weights it by the probability of its occurrence, thus:

which being greater than the £0 for certain of not opening the factory would justify going ahead with the factory project.

However, if the manager were averse to risk then he might not regard the expected money value criterion as being appropriate, for he might require a risk premium to induce him to take the risk. Application of a more cautious certainty equivalent criterion would reduce the certainty equivalent of the ‘open factory’ branch and might even tip the decision against going ahead on the grounds of the ‘downside risk’ of losing £30,000.See UNCERTAINTY AND RISK.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

decision tree

a graphical representation of the decision-making process in relation to a particular economic decision. The decision tree illustrates the possibilities open to the decision-maker in choosing between alternative strategies. It is possible to specify the financial consequence of each ‘branch’ of the decision tree and to gauge the PROBABILITY of particular events occurring that might affect the consequences of the decisions made. See RISK AND UNCERTAINTY.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
If the abnormal traffic flows were from a new P2P application, the data could be used to train the decision-tree model.
The interpretability and pedagogically meaningful constructions of decision-tree classifiers are even more important aspects in the OME than the traditional measurements, such as the accuracy and precision ratio that are usually used to evaluate the data-mining applications.
Decision-tree analysis showed that risk factors operate differently for different subgroups: Condom use was a protective factor only for participants who felt good about themselves more than half the time after having sex.
"A lot of nursing homes provide the education we do," says DeLuca, "but the difference is that we follow a documented decision-tree for every resident."
Victor is an expert in the process of using decision-tree analysis to help litigators determine the best course of action with regard to a case.
"Decision-tree Construction and Analysis." By Patrick Murphy, graduate student, Department of Information and Computer Science, and Betty H.
The foregoing audit-amelioration approaches can be evaluated with the decision-tree methodology.
"A further comparison of splitting rules for decision-tree induction" Machine Learning, 8, 1992, 75-85.
A decision-tree analysis that places customers into discrete groups based on their shared demographic characteristics often is performed.
In this article, a decision-tree model was built to predict the probability of a delay incident for nonstop flights from Miami International Airport (MIA) to Newark Liberty International Airport (EWR).
We formulated the model as an optimization problem of the corporate decision maker and constructed the model via a decision-tree interface.
These include the decision-tree approach that has been in use since the nineties and deep neural (the brain for AI) networks or deep-learning.