DTace

Building and Analyzing a Decision Tree

Create a New Tree DTace creates a new worksheet that is formatted for a DTace decision tree.

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Add Nodes Add nodes to the decision tree by using the add node form. Depending on the node type, a node name, probability and value is entered. You can easily edit nodes later. There are three node types: decision, chance, and end nodes.

A decision node is represented by a square, and denotes a point in the tree where a decision is made. A chance node is represented by a circle, and denotes a branching of the tree where two or more outcomes are possible with each outcome having a probability. When using Monte Carlo simulation, one outcome of a chance node is possible since all probabilities are covered by the probability distribution associated with the outcome. An end node is represented by a triangle, and denotes the end of a path through the decision tree.

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Roll Back Once the decision tree nodes have been added, roll back the tree to calculate the expected monetary value, expected utility or certainty equivalent of the root node. Using the "choose maximum" or "choose minimum" decision rules, you can rollback so the maximum value or minimum value is chosen at each decision node.

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Sensitivity Analysis DTace has a sensitivity analysis tool to vary payoffs and probabilities to find what factors have the most impact on expected value or utility. You set the amount of change as a percentage of the base case values, and the software automatically generates a tornado chart showing sensitivity. All reports and charts are native to Excel so you can easily change formatting to meet your needs.

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