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Practical applications of decision trees 153
analysis was designed to compare the monetary returns which might
result from the use of various types of automatic sorting equipment
either with or without the code. The EP-T approximation was used to
represent probability distributions of the extent to which the code would
be used, and the savings which would result from the various options
in the tree. The author reported that the approach helped the decision
makers ‘to think creatively about the problem and to generate options’.
Cohan et al. 7 used decision trees to analyze decisions relating to the use
of fire in forest management. For example, forest fires are deliberately
used to control pests and diseases, but a decision to start a controlled
fire at a particular time has to be made in the light of uncertainty about
weather conditions and the actual success of the fire. Nevertheless, if a
decision is made to postpone a fire this itself will result in costs caused by
the delay in meeting the foresters’ objectives. The authors reported that
the use of decision analysis helped forest managers to understand the
implications and relative importance of the key uncertainties involved in
the decisions. Moreover, it provided ‘clear and concise documentation
of the rationale underlying important decisions’. They argued that ‘this
can be invaluable in stimulating discussion and communication within
a forest management organization’.
Bell 8 used a decision tree to help New England Electric (a public
utility) to decide on the price they should bid at an auction for the
salvage rights of a ship which had run aground off the coast of Florida.
If the bid succeeded a decision would have to be made on whether to
install self-loading equipment on the ship, while if it failed a decision
would have to be made on what type of ship to purchase instead. The
intention was to use the ship to carry coal and other goods on the open
market, and there were uncertainties relating to factors such as whether
a given bid price would win and the level of revenue which would be
received from renting out the ship.
Other published applications include a decision relating to the choice
between two sites for drilling an oil well (Hosseini 9 ), the problem
faced by the management of a coal-fired power plant in evaluating and
selecting particulate emission control equipment (Madden et al. 10 ), management–union
bargaining (Winter 11 ) and the problem of reorganizing
the subsidiaries of a company, all of which required new premises (Hertz
and Thomas 12 ).
As we have seen, decision trees are the major analytical structures
underlying application of decision analysis to problems involving uncertainty.
In the examples that we have used so far in this book we have
either given a decision tree representation or used a case example where