3) An explanation that how utilities are allocated to various nodes.

Decision Tree:
Decision tree shows why a question is being asked or a conclusion drawn.
A decision tree is a map of the reasoning process. It can be used to explain why a question is being asked. For example a decision tree may assume that questions are answered with a certain yes or no. A tree that allows answering with a partial yes or no would have a much larger number of end nodes. Each end node represents a consequence i.e., a possible answer. Unless otherwise noted, NO is down and YES is up. When a sequence of events must be analyzed, decision trees provide a means to consider both utility and uncertainty. In a tree, the sequence of events tells the central line of the story.

Construction of a Decision Tree

Imagine a tree with a root, a trunk, and many branches. Lay it on its side, and you have an image of a decision tree. No branch of the tree is ever connected to the root, trunk, or branch leading to it. Thus, a tree is not circular; you cannot begin at one place, travel along the tree, and return to the same place. Because a decision tree shows the temporal sequenceevents to the left happen before events to the rightwe begin describing a decision tree with its trunk. The root of the tree, placed to the left and shown as a small square, represents a situation or decision. This is the starting point and every decision situation will have more than one possible solutions.

There are at least two lines stemming from this decision node. Each line corresponds to one decision option. The decision options shown in this example are A and B. These options may be occurrence or nonoccurrence of something or different forms of the same thing. The second component of a decision tree is a chance node. From a chance node several lines are drawn, each showing a different possible event. This node shows the occurrence of events

over which the decision maker has no direct control. Each option from the first component will result into possible events whose probabilities are shown by P1, P2... P6. The events showed by even numbers 2, 4, 12 show the non-occurrence of events 1, 3, 11. Note that the chance node is identified by a circle.

The third element in a decision tree is the consequences. While the middle of the tree shows events following the decision, the right side, at the end of the branches, shows the consequences of these events. The consequences in the present example are shown by the letters C1, C2, C3 and C4. A decision tree was constructed using the above information which is shown below.

A decision tree, once analyzed and reported, indicates a preferred option and the rationale for choosing it. Such a report communicates the nature of the decision to other members of the organization. The tree and the final report on the preferred option are important organizational documents that can influence people, for better or worse, long after the original decision makers have left. While the analysis and the final report are important by themselves, the process of gathering data and modifying the tree are equally important. The process helps in several ways:

It informs all parties that a decision is going to be taken and they must articulate their concerns before it is completed. Reassures clients that the analysis is fair and open. It provides new insights while facilitating discussion of the decision. It removes decision makers at various levels from day-to-day concerns, allowing them to ponder the impending changes. As decision makers put more thought into the decision, they develop more insight into their own beliefs. And the discussions among decision

makers will develop further information and insights. If the analysis was done without their involvement, the positive atmosphere of collaboration would be lost This is not the end of the process. The decision tree remains under review scrutiny and decision makers may keep on modifying it after checking the results and outcomes of the decision making process. The results or outcomes may be in terms of costs or savings to the organization as a result of taking those decisions.

Estimation of Probabilities
In a decision tree, each probability is conditioned on events preceding it. Thus P1 in the above figure is not the probability of Event 5 but the probability of Event 5 provided Event 1 has happened after Option A.

Expected Value or Utility

Sometimes, consequences of an event are not just additional cost or savings. Sometimes it is important to measure the utility associated with various outcomes. In these circumstances, we measure the value of each consequence in term of its utility and not merely its costs. Bernoulli suggested that people maximize utility rather than monetary value, and costs should be transformed to utilities before expectations are taken. He named this model expected utility. According to expected utility, if an alternative has n outcomes with costs c1 . , Cn, associated probabilities of P1, ... , Pn, and each cost has a particular utility to the decision maker, say u 1,. . . , Un then: Expected utility = Pi * ui For i =1, ..., n

Utilities are also better than costs in testing whether benefits meet the clients goals. Utility is also preferable for clients who must consider attitudes toward risk. This is because expected utility, in contrast to expected cost, reflects attitudes toward risk. A risk-neutral individual bets the expected monetary value of a gamble. A risk taker bets more on the same gamble because he or she associates more utility to the high returns. A risk averse individual cares less for the high returns and bets less. Research shows that most individuals are risk seeking when they can choose between a small loss and a gamble for a large gain and are risk averse when they must choose between a small gain and a gamble for a large loss (Kahneman and Tversky 1979).