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154 Decision trees and influence diagrams
the individual pieces in the jigsaw were sufficient and necessary to complete
the case analysis for subsequent computations. Real-life decision
problems may, at first pass, contain pieces from many different jigsaws.The
trick is to know which pieces are missing (and so need to be obtained)
or which are either redundant or not relevant to the problem analysis
in hand.
Assessment of decision structure
Consider the following ‘real-life’ decision problem that we would like
you to attempt to represent in the form of a decision tree.
Imagine that you are a businessman and you are considering making electronic
calculators. Your factory can be equipped to manufacture them and you
recognize that other companies have profited from producing them. However,
equipping the factory for production will be very expensive and you
have seen the price of calculators dropping steadily. What should you do?
Well, what is the correct decision-analytic representation? Figure 6.7
presents one representation which may or may not match yours.
Figure 6.8 is a more elaborate and perhaps more realistic representation
of the problem.
Equip to
manufacture
calculators
Do
not
equip
Price of calculators increases
Price of calculators stays steady
Price of calculators falls
Figure 6.7 – One decision-analytic representation of the calculator problem
Utility of
outcomes
A
B
C
D
E
F