welcome in this video i'm going to construct a decision tree
for this payoff table using treeplan in excel
d1 and d2 have these three states of nature
but these payoffs and 400 here have
another state of nature in d2 here. So make sure trip line is installed with
excel and then click add-ins, tree plan
new tree. By default treeplan shows a decision node with two
alternatives. I can change alternatives to d1 and d2
Now, for the states of nature i'll go to this terminal node here
i'll go to add-ins and tree plan or i can use ctrl shift T
this time i want an event node and i want it to have three branches so
i'll click ok
probabilities of my state of nature are 0.2 for s1
0.5 for s2, 0.3 for s3 for d2 i'm going to click on the
terminal node here and change to events node
this time i want it to have two branches for the point seven and point three and
click ok so i can change this value to 0.7
and when i change that it shows #N/A here for the expected value
it's telling me that something is wrong that is
this 0.7 and 0.5 don't add up to one so the probabilities have to add up to
one i'm going to change this back to 0.3 and
the #N/A is gone. So over here i can create
the same event node with three branches but because i already have it here
i'm gonna just copy it. So i'm gonna go to this node here
or i can click on it and then ctrl+shift+T copy subtree
then i'll click ok. It has copied the subtree. You can't
use ctrl c to copy here. now i'll go to this terminal node here
ctrl shift t again or i can go to add-in treeplan
and then i'm going to paste that subtree there so i'm going to click ok
and this subtree is pasted so i'm going to add the payoffs now
i waited till the end to add the payoffs because if i added them earlier on the
payoffs will disappear while i'm adding new
nodes and branches so i'll add the payoffs quickly
so you can see here tree plan has already calculated the
expected value for me so the expected value here
is 430. That's 500 times 0.2 plus 780 times 0.5 plus negative 200 times 0.3
and the expected value here is 440 and here we have 400 so it calculates
another expected value here which is 428 and then we have
these two expected values to pick from and the better of the two is 430 because
by default this is set to maximize so i'm just going to copy these payoffs
because if i try to make changes so for example
if i try to make this a decision node this payoffs
will automatically disappear this time i want this decision problem
to minimize rather than maximize so i can
click here and then click tree plan
and if i go to options here i can either maximize or minimize so if i select
minimize and click ok like i said the payoffs
will disappear and if i put them back in i have
the decision note picking 428 here rather than 430 so that's a very quick
overview of tripling thanks for watching