Decision Tree Problems

Decision Making Under Uncertainty

Decision under Uncertainty is made on the basis of
Maximax, Maximin and Equally likely.

Decision Making Under Risk

Decision under Risk is made w.r.t the probabilities:
Expected Value of Perfect Information (EVPI)
b). Maximax Decision: Very Large Station
c). Maximin Decision: Small Station
d). Equally Likely: Very Large Station
e). Decision Tree with each outcome equally likely.
1. A glass specializes in crystal is developing a substantial
backlog and for this the firm’s management is considering
the three courses of action. The correct choice depends
largely upon the future demand – which may be low
medium or high. Show this decision situation in the form of
a decision tree and indicate the most preferred decision and
its corresponding expected value.
Deman Probabilit Course of Action
d y S1 S2 S3
Low 0.1 10 -20 -150
Mediu
m 0.5 50 60 20
High 0.4 50 100 200
 S1: Sub-Contracting , S2: Being Overtime , S3:
Construct New Facility

1. Ram, chief engineer at Southern Electronics, has to decide

whether to build a new state-of-the-art processing facility. If
the new facility works, the company could realise a profit
Rs.200000. If it fails, Southern Electronics could lose
Rs.180000. At this time, Ram estimates a 60% chance that
the new process will fail.
The other option is to build a pilot plant and then decide
whether to build a complete facility.
The pilot plant would cost ₹10000 to build. Ram estimates a
50-50 chance that the pilot plant will work. If the pilot
plant works, there is a 90% probability that the
complete plant, if it is built, will also work. If the pilot plant
does not work, there is only a 20% chance that the
complete project (if it is constructed) will work. Ram faces a
dilemma. Should he build the plant? Should he build the
pilot project and then make a decision? Help Ram by
analysing this problem using decision tree.
Let X1 = Wooden Chair
X2 = Steel Chair

Then Objective Function , Z = 5X1 + 3X2

Subject to
X1 ≥ 150 Wooden chairs for Bhagirath Bhavan
X2 ≥ 225 Steel chairs for Shankar Bhavan
X1 + X2 ≥ 150 Mix Chairs for Krishna Bhavan
X 1 - X2 ≥ 0 As many Steel Chairs as Wooden for
Gandhi Bhavan