ECONOMICS (CBSE/UGC NET)

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ECONOMICS

DECISION MAKING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A downside of using decision trees in business decision-making is that:
A
Decision tree ignores the cost of the decision
B
Decision trees are hard to calculate
C
A decision tree takes no account of risk
D
Assignment of expected values & probabilities is prone to bias
Explanation: 

Detailed explanation-1: -Disadvantages of Decision Trees One of the limitations of decision trees is that they are largely unstable compared to other decision predictors. A small change in the data can result in a major change in the structure of the decision tree, which can convey a different result from what users will get in a normal event.

Detailed explanation-2: -Answer-C) Decision trees are prone to overfitting.

Detailed explanation-3: -The Expected Value (EV) shows the weighted average of a given choice; to calculate this multiply the probability of each given outcome by its expected value and add them together eg EV Launch new product = [0.4 x 30] + [0.6 x-8] = 12-4.8 = £7.2m.

Detailed explanation-4: -Advantages of Decision Trees. Interpretability. Less Data Preparation. Non-Parametric. Versatility. Non-Linearity. Disadvantages of Decision Tree. Overfitting. Feature Reduction & Data Resampling. Optimization. 01-Oct-2022

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