What Is a Decision Tree?

Decision trees are used in many disciplines, from science and mathematics to the legal and business professions, to help determine the best course of action, both at the start and all along the path of discovery. Available in computer programs, employing complex statistical algorithms, or just scribbled on a sheet of paper, these models have formed the early planning of many discoveries and decisions. Starting with a basic choice that must be made, then branching off into all potential "chance" outcomes and methods for obtaining success, the decision tree can help decide how and when to do something as well as what not to do.

Three symbols are used to represent three "nodes," or pivot points, in the model: squares, circles and triangles. Each is used to represent a different type of consideration that must be made along the path to a final decision. Using them correctly will aid in determining the "expected value" of each alternative.

The square symbol is used at the very beginning or apex of the decision tree, branching off in two or more directions to illustrate a point at which a decision must be made. It may also be used in other places throughout the tree when other supplementary decisions will need to be made. Circles are used at other junctions when chance is a factor, spreading off into branches representing the expected reactions or outcomes, such as fair, average and bad. When a triangle node caps a line segment in the tree, that path of chance has been exhausted, resulting in one of several final outcomes. This outcome may be financial, statistical or even involve the potential for litigation.

Operations or manufacturing analysts frequently use the decision tree to lock in on the probability of each potential course of action. Others use it for more pragmatic and simple reasons. A writer may utilize a decision tree to lay out the best outcome for each character in a book or movie. That same person may lay out a decision tree to decide how best to allocate the monthly revenue.

A business, as a general example, may have limited excess revenue. To decide between offering raises to loyal employees or launching a new product, the company would start with a square, from which a line extends to represent those two courses. From there, more squares are employed with branching lines to show more decisions that must be made, such as cost-of-living raises versus 10 percent raises, etc.. Other junctions will contain circles and more branching lines, representing the possible levels of customer or employee satisfaction. Final lines are capped with triangles, often alongside the potential financial reward of each course.