1Influence Diagrams & Basic Decision Trees MHA 6350Dr. Burton
2Graphic symbols Nodes Arrows (arcs) are used to connect nodes Square = decisionsCircles = chance eventsRectangles with rounded corners = valuesArrows (arcs) are used to connect nodesA node at the beginning of an arc is called a predecessorA node at the end of an arc is a called a successor
3VentureSucceedsOr FailsValueInvest?Chance nodeDecision nodeValue nodeVenture Capital Decision
4Rules for using arcs (arrows) Two kinds of arcsSolid: Point to chance and value nodesDashed: Point to decisionsIndicates the decision is made knowing the outcome of the predecessor node.
5ABFEThe outcome of Event A isrelevant for assessing thechances associated withEvent B.The decision maker knowsoutcome of Event E whenmaking Decision F.CDGHDecision C is relevant forassessing the chanceswith Event D.Decision G is made before Decision H.
6Building an influence diagram EPA must decide whether to use an economically beneficial chemical that may be carcinogenic.The decision must be made without perfect information about either the long-term benefits or health hazards.Alternative courses of action:-permit use of the chemical-restrict its use-ban it altogetherTests can be run to learn about the carcinogenic potential of the material.Survey data can indicate the extent of exposure when people use the chemical.
10Common MistakesInfluence Diagrams should not be confused with flow charts which are sequential in nature.Building influence diagrams with many chance nodes pointing to a primary decision node.Inclusion of cycles (circular paths among nodes).
11Influence diagram vs. Decision tree Influences diagrams are excellent for displaying a decision’s structure, but they hide many details.A decision tree reveals more of the decision diagrams surface details.
12Basic Decision tree (A politician’s decision) A popular political candidate’s options:Run for reelection to House of Rep.Run for a Senate seatIf she chooses to run for the Senate there is a chance of losing.Source: Clemen,1990
13Run for reelectionU.S. Representative (intermediate)WinU.S. Senator (best)Run for SenateLoseLawyer (worst)Basic Risky Decision
14WinU.S. RepresentativeRun for reelectionLoseSmall-time LawyerWinU.S. SenatorRun for SenateLoseBig-time LawyerDouble-Risk Decision
15Accept SettlementKnown AmountHighestReject SettlementAmount of Court AwardLowestRange-of-Risk Decision
16Exercise. (Given the information below draw a decision tree.) You have just bought a new $500 outfit.You are leaving for work.You consider taking an umbrella which will protect your outfit if it rains.Without the umbrella, the outfit could be ruined.If it does not rain, carrying the umbrella will be an inconvenience.