Key Idea: Decision trees help businesses make decisions under uncertainty using probabilities and expected values. In IB exams, this is a high-mark calculation + evaluation topic.
[Diagram: decision-tree]
✅ Advantages: **Clear structure —** visual decision-making. **Quantitative —** uses data. **Compares options easily**.
⚠️ Limitations: **Relies on estimates —** probabilities may be inaccurate. **Ignores qualitative factors —** brand, risk. **Oversimplifies decisions**.
You MUST show full working to gain marks. Method marks are awarded even if final answer is wrong.
Do not choose only based on EV — discuss risk, reliability and business context.
Important: Forgetting to multiply probabilities, not working backwards, or ignoring qualitative factors in evaluation.
- Draw or interpret the tree
- Calculate expected values
- Choose best option based on EV
- Evaluate using non-financial factors
- Justify final decision