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ACCA Applied Skills · Performance Management · Dealing with risk and uncertainty in decision-making

In a decision tree, how should the tree be evaluated to identify the best sequence of decisions?

A decision tree is evaluated from right to left (rolling back). Expected values are calculated at each chance node, and the best option is selected at each decision node, so later decisions are reflected in earlier choices.

  1. AWork from left to right, choosing the highest probability at each node
  2. BWork from right to left, calculating expected values at chance nodes and choosing the best option at decision nodesCorrect
  3. CWork from left to right, adding all payoffs together at each decision node
  4. DWork from right to left, choosing the lowest-cost branch at each chance node

Explanation

Decision trees are solved by rolling back: start at the final outcomes, compute expected values at chance nodes, and select the best alternative at decision nodes. Left to right does not allow later decisions to be reflected in earlier choices.

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