Decision Tree diagram using Expected Monetary Value Analysis

Decision Tree diagram using Expected Monetary Value Analysis

Decision trees are used to help make the most valuable from choices involving an element of risk and reward.

These trees are composed of “nodes” (bracket, oval and square) connected by “branches” (lines).
Using iThoughts, these maps can be easily drawn with auto calculation at each node.

Start with the pay-off nodes on the right-hand side, with a range of outcomes, each with a pay-off £ and likelihood of happening. The sum of likelihoods at each probability node (oval) should be 1.0 The probability node will calculate the expected monetary value (EMV)

This EMV also has a cost £ which should be entered in the investment node (bracket), which then calculates the Net EMV. The Decision Node (square) then calculates the highest Net EMV from the choices