Introduction to Decision Trees: Basic Structure and Characteristics

This video introduces decision trees, a tool used by businesses to evaluate potential outcomes of decisions. It explains the structure of decision trees, including decision and chance nodes, and how they help in assessing investment decisions. The video also covers the importance of probabilities and opportunity costs in decision making. Finally, it outlines the basic features of decision trees and sets the stage for constructing them in future videos.

What is the primary purpose of using decision trees in business?

Describe the structure of a decision tree and its components.

What are the two main types of nodes in a decision tree, and what do they represent?

In what scenarios might a business choose to do nothing instead of making an investment?

How do chance nodes differ from decision nodes in a decision tree?

What does it mean for probabilities across chance branches to sum up to one?

Explain the significance of opportunity cost in decision-making.