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590 CHAPTER 13 DECISION ANALYSIS

The tree now appears as follows:

We next select the cells containing Event 4 and Event 5 and rename them Strong
and Weak to provide the proper names for the PDC states of nature. After doing so
we can copy the subtree for the chance node in cell F5 to the other two decision
branches to complete the structure of the PDC decision tree.
Step 1. Select cell F5
Step 2. Select the Tools menu and choose Decision Tree
Step 3. When the TreePlan Event dialog box appears:
Select Copy subtree
Click OK
Step 4. Select cell F13
Step 5. Select the Tools menu and choose Decision Tree
Step 6. When the TreePlan Terminal dialog box appears
Select Paste subtree
Click OK
This copy/paste procedure places a chance node at the end of the Medium decision
branch. Repeating the same copy/paste procedure for the Large decision branch
completes the structure of the PDC decision tree as shown in Figure 13.16.

Inserting Probabilities and Payoffs
TreePlan provides the capability of inserting probabilities and payoffs into the
decision tree. In Figure 13.16, we see that TreePlan automatically assigned an equal
probability 0.5 to each of the chance outcomes. For PDC, the probability of strong
demand is 0.8 and the probability of weak demand is 0.2. We can select cells H1,
H6, H11, H16, H21 and H26 and insert the appropriate probabilities. The payoffs
for the chance outcomes are inserted in cells H4, H9, H14, H19, H24 and H29. After
inserting the PDC probabilities and payoffs, the PDC decision tree appears as shown
in Figure 13.17.

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