Decision Trees

• What are the limitations of using decision trees?

  • The Expected Value is calculated from predicted figures.
  • Predictions can often be wrong - this is likely true if insufficient market research has been conducted. An example of this being inappropriate sample size and inappropriate research.
  • False sense of security - using this technique doesn’t insulate from risk. ( even if sufficient market research has been conducted)
  • Ignores dynamic nature of markets
  • Distracts managers from non financial issues
  • ( qualitative)
  • Easy to manipulate to encourage a particular course of action bias.