1. Decision Trees ADVANTAGES:
All outcomes are highlighted and considered.
It makes people think about what happens when they make a decision.
BUT
The numbers are only estimates.
Who produces the figures/where is the data from/
What is the worst case scenario?
Qualitative factors- image, employees reactions, ethics etc.
Therefore decision trees are part of the decision-making process, not the only deciding factor.
RISK
This must be taken into account eg. option B may have a higher expected value but also has a higher loss in the worst case scenario.
How do firms estimate probabilities?
Use of back-data eg. if 1 in 4 new products succeed then: 0.25 success, 0.75 failure.
Test market results
Judgement and intuition.