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Glossary:Decision tree

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In the context of risk, a decision tree is a sequence of nodes which are either a decision or an uncertainty, and outcomes associated with each mode. The purpose of a decision tree is to define the set of scenarios and the sequence of events that guide the evaluation of risk and return. It is displayed as a pictorial device, consisting of nodes and branches, that describes two or more courses of action and the resulting uncertainties with probabilities of occurrence, as well as possible subsequent actions and uncertainties. The solution to the tree consists of a preferred course of action or path along the tree, together with the resulting expected value.