The decision making problems discussed earlier is based on single stage problems because of the payoffs, decision alternatives, states of nature and probabilities associated with the occurrence of states of nature are not changed. However, when the decision maker needs to revise decisions on getting new information, he make a sequence of other decisions.In such a case the problem becomes a multi-stage decision problem because the consequence of one decision affects future decision. Thus, if the sequence of decisions are to be made simultaneously, the decision tree approach is more useful and informative.
A decision tree is nothing but a graphic device of showing the sequence of decisions to be made and the possible events that may occur. In other words a graphic display of the decision process indicating decision alternatives states of nature probabilities attached to the states of nature, and conditional benefits and losses is called a decision tree. The decision diagram looks very much like a drawing of a tree, therefore also called decision tree. It helps a decision problem where he is required to make a sequence of decision rather than only a single one.
A decision tree is nothing but a graphic device of showing the sequence of decisions to be made and the possible events that may occur. In other words a graphic display of the decision process indicating decision alternatives states of nature probabilities attached to the states of nature, and conditional benefits and losses is called a decision tree. The decision diagram looks very much like a drawing of a tree, therefore also called decision tree. It helps a decision problem where he is required to make a sequence of decision rather than only a single one.
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