Chapter 22, Problem 1P

Your company is planning on opening an office in Japan. Profits depend on how fast the economy in Japan recovers from its current recession. There is a 50% chance of recovery this year. You are trying to decide whether to open the office now or in a year. Construct the decision tree that shows the choices you have to open the office either today or one year from now.

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. 1. To open office
2. 2. To not open office

If to open office, then two possible decisions:

1. 1. Economy recover
2. 2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. 1. Economy recover
2. 2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. 1. To open office
2. 2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. 1. To open office
2. 2. To not open office

Diagram from decision tree: