- A map of sequential decision-making process.
- Designed for analysing decision problems that involve a series of choice alternatives that are constrained by previous decisions.
- They illustrate the complete range of future possibilities and their associated probabilities in terms of a logical progression from an initial decision point, through each subsequent constrained decision alternative, to an ultimate outcome.
- Widely employed because many important decisions are not made at one point in time, but rather in stages.
- Subsequent determinations depend on prior judgements.
- Sequence of events can be mapped out to visually resemble the branches of a tree.
- Because demand probabilities are known, the expected value of cash flow can be determined.
- Risk and expected return differentials can be incorporated into the decision-making process.
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