How to construct a decision tree 1.List each decision nodes & its alternatives. 2.List each chances nodes& its alternatives. 3.Draw the nodes and links. 4.Add costs & probabilities along links 5.Calculate utilities for utility (leftmost) nodes 6.Calculate expected utilities

Example You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do?

1. List each decision nodes & its alternatives. Which project? – Fancy – Mundane You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do?

2. List each chance nodes & its alternatives. Outcome? – Success – Failure You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do?

3. Draw nodes as tree Project? Outcome? Fancy Mundane Success Failure Decision nodes are square Chance nodes are oval Utility nodes are like diamonds You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do?

4. Add costs and probabilities to links Project? Outcome? Fancy cost 1M$ Mundane cost 0.5M$ Success p=0.1 Success p=0.8 Failure p=0.2 Failure p= 0.9 You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do?

5. Calculate utility values for utility nodes Project? Outcome? Fancy cost 1M$ Mundane cost 0.5M$ 10M$-0.5M$1M$-1M$ Success p=0.1 Success p=0.8 Failure p=0.2 Failure p= 0.9 Benefit: 0 Cost: 0.5M$ You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do? Benefit: 11M$ Cost: 1M$

6. Calculate expected utilities, moving leftward Project? Outcome? Fancy cost 1M$ Mundane cost 0.5M$ 10M$-0.5M$1M$-1M$ Success p=0.1 Success p=0.8 Failure p=0.2 Failure p= 0.9 You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do? EU = 0.1*10=1.0 EU = 0.9*(-1)=-0.9 EU = 0.8*1=0.8 EU = 0.2*(-0.5)=-0.1

6. Calculate expected utilities moving leftward Project? Outcome? Fancy cost 1M$ Mundane cost 0.5M$ 10M$-0.5M$1M$-1M$ Success p=0.1 Success p=0.8 Failure p=0.2 Failure p= 0.9 You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do? EU = 0.1*10=1.0 EU = 0.9*(-1)=-0.9 EU = 0.8*1=0.8 EU = 0.2*(-0.5)=-0.1 EU = = 0.1 EU = =0.7

6. Calculate expected utilities moving leftward Project? Outcome? Fancy cost 1M$ Mundane cost 0.5M$ 10M$-0.5M$1M$-1M$ Success p=0.1 Success p=0.8 Failure p=0.2 Failure p= 0.9 You need to decide whether to do a fancy project or a mundane project. Either project can succeed or fail. There is a 10% chance of success for the fancy project, and 80% chance of success for the mundane project. The fancy project costs 1M$ to execute, and if it succeeds, you get 11M$. If you lose, you get nothing. The mundane project costs 0.5M$ to execute, and you get 1.5M$ if it succeeds. If it fails, you get nothing. Which project should you do? EU = 0.1*10=1.0 EU = 0.9*(-1)=-0.9 EU = 0.8*1=0.8 EU = 0.2*(-0.5)=-0.1 EU = = 0.1 EU = =0.7 Best choice

A more complex example Your show dog has cancer. If you do nothing, there is a 90% chance she will die. If she has surgery, there is a 40% chance of curing the cancer, 10% chance of dying from the surgery, and a 50% chance that the cancer will survive, in which case, she has the usual 90% chance of dying. If she gets chemo, there is a 20% chance of curing the cancer, and an 80% that the cancer will remain, in which surgery can be performed, with the same risks and outcomes as mentioned above. Chemo cannot be done after surgery, by the way. The dog is worth 900K$ if she is alive, and nothing if she is dead. Surgery costs $10K and chemo costs 4K$. What should you do?

1. List each decision nodes & its alternatives. Which treatment? – surgery – chemo – Nothing After chemo fails, which treatment? – surgery – nothing Your show dog has cancer. If you do nothing, there is a 90% chance she will die. If she has surgery, there is a 40% chance of curing the cancer, 10% chance of dying from the surgery, and a 50% chance that the cancer will survive, in which case, she has the usual 90% chance of dying. If she gets chemo, there is a 20% chance of curing the cancer, and an 80% that the cancer will remain, in which surgery can be performed, with the same risks and outcomes as mentioned above. Chemo cannot be done after surgery, by the way. The dog is worth 900K$ if she is alive, and nothing if she is dead. Surgery costs $10K and chemo costs 4K$. What should you do?

2. List each chance nodes & its alternatives. Outcome? – Cancer cured – Died due to surgery (only for surgery node) – Cancer not cured Your show dog has cancer. If you do nothing, there is a 90% chance she will die. If she has surgery, there is a 40% chance of curing the cancer, 10% chance of dying from the surgery, and a 50% chance that the cancer will survive, in which case, she has the usual 90% chance of dying. If she gets chemo, there is a 20% chance of curing the cancer, and an 80% that the cancer will remain, in which surgery can be performed, with the same risks and outcomes as mentioned above. Chemo cannot be done after surgery, by the way. The dog is worth 900K$ if she is alive, and nothing if she is dead. Surgery costs $10K and chemo costs 4K$. What should you do?

3. Draw nodes Treatment? Outcome? Surgery chemo Cured Cured ? Uncured Surgery kills Your show dog has cancer. If you do nothing, there is a 90% chance she will die. If she has surgery, there is a 40% chance of curing the cancer, 10% chance of dying from the surgery, and a 50% chance that the cancer will survive, in which case, she has the usual 90% chance of dying. If she gets chemo, there is a 20% chance of curing the cancer, and an 80% that the cancer will remain, in which surgery can be performed, with the same risks and outcomes as mentioned above. Chemo cannot be done after surgery, by the way. The dog is worth 900K$ if she is alive, and nothing if she is dead. Surgery costs $10K and chemo costs 4K$. What should you do? Outcome? Nothing cost 0$ Die? uncured Die Live Outcome? Die Live Die? Die Live Treatment? Surgery Nothing

4. Add costs & probabilities Treatment? Outcome? Surgery cost 10K$ chemo cost 4K$ Cured p=0.4 Cured p=0.2 Uncured p=0.8 Surgery kills p= 0.1 Your show dog has cancer. If you do nothing, there is a 90% chance she will die. If she has surgery, there is a 40% chance of curing the cancer, 10% chance of dying from the surgery, and a 50% chance that the cancer will survive, in which case, she has the usual 90% chance of dying. If she gets chemo, there is a 20% chance of curing the cancer, and an 80% that the cancer will remain, in which surgery can be performed, with the same risks and outcomes as mentioned above. Chemo cannot be done after surgery, by the way. The dog is worth 900K$ if she is alive, and nothing if she is dead. Surgery costs $10K and chemo costs 4K$. What should you do? Outcome? Nothing cost 0$ Die? uncured p=0.5 Die p=0.9 Live p=0.1 Outcome? Die p=0.9 Live p=0.1 Die? Die p=0.9 Live p=0.1 Treatment? Surgery cost 10K$ Nothing

5. Calculate utility values for utility nodes Treatment? Outcome? Surgery cost 10K$ chemo cost 4K$ 896K$-10K$ Cured p=0.4 Cured p=0.2 Uncured p=0.8 Surgery kills p= 0.1 Your show dog has cancer. If you do nothing, there is a 90% chance she will die. If she has surgery, there is a 40% chance of curing the cancer, 10% chance of dying from the surgery, and a 50% chance that the cancer will survive, in which case, she has the usual 90% chance of dying. If she gets chemo, there is a 20% chance of curing the cancer, and an 80% that the cancer will remain, in which surgery can be performed, with the same risks and outcomes as mentioned above. Chemo cannot be done after surgery, by the way. The dog is worth 900K$ if she is alive, and nothing if she is dead. Surgery costs $10K and chemo costs 4K$. What should you do? Outcome? Nothing cost 0$ 890K$-10K$ Die? 890K$ uncured p=0.5 Die p=0.9 Live p=0.1 Outcome? 0$900K$ Die p=0.9 Live p=0.1 -4K$ Die? 896K$ Die p=0.9 Live p=0.1 Treatment? Surgery cost 10K$ Nothing

6. Calculate expected utilities Treatment? Outcome? Surgery cost 10K$ EU=444 chemo cost 4K$ EU= K$-10K$ Cured p=0.4 EU=365 Cured p=0.2 EU=179.2 Uncured p=0.8 EU=440 Surgery kills p= 0.1 EU=-1 Your show dog has cancer. If you do nothing, there is a 90% chance she will die. If she has surgery, there is a 40% chance of curing the cancer, 10% chance of dying from the surgery, and a 50% chance that the cancer will survive, in which case, she has the usual 90% chance of dying. If she gets chemo, there is a 20% chance of curing the cancer, and an 80% that the cancer will remain, in which surgery can be performed, with the same risks and outcomes as mentioned above. Chemo cannot be done after surgery, by the way. The dog is worth 900K$ if she is alive, and nothing if she is dead. Surgery costs $10K and chemo costs 4K$. What should you do? Outcome? Nothing cost 0$ EU=90 890K$-10K$ Die? 890K$ uncured p=0.5 EU=80 Die p=0.9 EU= -9 Live p=0.1 EU=89 Outcome? 0$900K$ Die p=0.9 EU=0 Live p=0.1 EU=90 -4K$ Die? 896K$ Die p=0.9 EU=-3.6 Live p=0.1 EU=89.6 Treatment? Surgery cost 10K$ EU=440 Nothing EU=86

My disk drive is flakey. Tech says that there is a 10% chance it will crash in the next week, and replacing the disk and data will cost me $200. If I replace the disk, it will cost me $70 and it will not crash. If I save its contents to DVD, reformat and restore it, then it costs me 4 hours (equivalent to $40) but reduces the chance of crashing to 3%. Save, reformat, restore? Crash? No Yes Yes p=0.03 Yes p=0.1 No p=0.9 No p= 0.97 Replace disk? -70 Yes No EU = 0.03*(-240)+0.97*(-40) = -46 EU = 0.10*(-200)+0.90*(0) = -20 EU = -70

Quiz question You will be drilling a water well in your backyard, and you have to decide where to dig it. If you just dig where you think it is best, there is a 40% chance you’ll hit water. If you hire a seismologist, the chances increase to 60% but it costs you 10K$. If you hire a water witch, the chance of hitting water is 50% and the cost is 1K$. If you get 50K$ for hitting water, what should you do Draw the decision tree Evaluate alternatives Indicate best choice Put your name on the paper and hand it in.

You will be drilling a water well in your backyard, and you have to decide where to dig it. If you just dig where you think it is best, there is a 40% chance you’ll hit water. If you hire a seismologist, the chances increase to 60% but it costs you 10K$. If you hire a water witch, the chance of hitting water is 50% and the cost is 1K$. If you get 50K$ for hitting water, what should you do? Water? Seismologist Cost 10K EU=20 Nothing Cost 0$ EU=20 49K$-10K$40K$ -1K$ Yes p=0.4 EU=20 Yes p=0.6 EU=24 No p=0.4 EU=-4 No p= 0.5 EU=-0.5 Detector? 50K$ Water witch cost 1K$ EU=24 Water? No p= 0.6 EU=0 Yes p=0.5 EU=24.5 0