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Risk: expected value and chance of success (view source)
Revision as of 20:18, 3 April 2014
, 20:18, 3 April 2014→Decision tree analysis
The expected value concept also has important applicability in the analysis of complex and sequential decisions. Here the basic idea is to "map out" the sequence of events, indicating decision and chance nodes as follows:
The expected value concept also has important applicability in the analysis of complex and sequential decisions. Here the basic idea is to "map out" the sequence of events, indicating decision and chance nodes as follows:
[[File:ExpectedValueSuccessUfig1.png|center]]
Probabilities must be assigned to all possible outcomes emanating from chance nodes, but not to branches from decision nodes. Risked values are assigned to each foreseen decision. Decision trees are constructed from left to right and solved from right to left.
Probabilities must be assigned to all possible outcomes emanating from chance nodes, but not to branches from decision nodes. Risked values are assigned to each foreseen decision. Decision trees are constructed from left to right and solved from right to left.