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Chapter 5 Decision Tree Assignment

Moira is a wildlife photographer looking to expand her greeting card business. She has two options: setting up an online storefront at a cost of £4,000 or stocking her cards in local stores and tourist centers for £1,000. Using a decision tree, Moira modeled the potential income and probabilities of success and failure for each option. The analysis found that stocking cards locally had an expected net gain of £8,200, higher than the £5,900 expected for an online store. Thus, the decision tree helped Moira determine that selling cards through local stores was the better option.

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452 views

Chapter 5 Decision Tree Assignment

Moira is a wildlife photographer looking to expand her greeting card business. She has two options: setting up an online storefront at a cost of £4,000 or stocking her cards in local stores and tourist centers for £1,000. Using a decision tree, Moira modeled the potential income and probabilities of success and failure for each option. The analysis found that stocking cards locally had an expected net gain of £8,200, higher than the £5,900 expected for an online store. Thus, the decision tree helped Moira determine that selling cards through local stores was the better option.

Uploaded by

mir zohaib
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Decision Tree

Moira is a keen and expert photographer of wildlife. She has recently launched a range of
greeting cards featuring her photos that she sells at craft and gift fairs across the UK. Moira is
now looking to expand the business and has identified two options. The first is to set up a web
page and sell her cards online. She has estimated that this option would cost her £4,000. The
second option is to get her cards stocked in local independent stores and tourist information
centres. She has estimated that this will cost her just £1,000
Complete the decision tree below to assess which of the two options available to Moira is
the better one. Show your workings

£12000

0.7
0.3 Net gain: 5900
9900
£4000

£5000

£8200
£1000
£20000
0.4

0.6
Net gain: 8200
9200

$2000
Working:
Calculation for Opening a website:
Expected value (EV) : (probability * income) for success - (probability * income) for failure

:P*I+P*I
: 0.7*12000 + 0.3*5000
: 8400+1500
: 9900

Net gain: Expected value (EV) - Income


: 9900 – 4000
: 5900

Calculation for cards stocked in local independent stores and tourist information centres:
Expected value (EV) : (probability * income) for success - (probability * income) for failure

:P*I+P*I
: 0.4*20000 + 0.6*2000
: 8000+1200
: 9200

Net gain: Expected value (EV) - Income


: 9200 – 1000
: 8200

Explain one advantage to Moira of using a decision tree to help her choose the best option
As Moira didn’t knew the possible outcomes of the options she was going to choose, so this
decision tree assisted her in predicting the success and failures of both options and then choose
the best option based on the highest net gain.

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