What does a decision tree tell us and why is it useful? What is sensitivity analysis...

What does a decision tree tell us and why is it useful? What is sensitivity analysis and why is it useful?

Expert Solution

The decision tree helps us to choose between several courses of action. They provide us with the risks and rewards associated with choosing a particular course of action. It helps in choosing a particular course of action and reduces any confusion in decision making. It uses a tree like model for decisions.

Sensitivity analysis determines how a value of an independent variable affect the dependent variable under a given set of assumptions. It helps us to take decisions ranging from planning a family wedding to decision at corporate level, regarding accepting or rejecting a project. In measures the sensitivity of a particular input , keeping all other inputs as constant. This process is repeated till the sensitivities of all the other inputs is measured. The higher the sensitivity of an input, the higher will be the changes in the output while changing that input.

it helps in determining the riskiness in a particular strategy.
it helps us to make informed decisions.
it helps in decision making.

jeff jeffy answered 1 year ago

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