Decision tree

Another method to depict the sequence of a decision is the decision tree. Where squares are decisions and circles are states of nature (events). We usually depict two contrary events, connected by branches. Over the braches probabilities of occurrences are written.

Here, “A” means bet, “G” means win and “P” to lose. The respective braches represents probabilities of losing or wining. To analyze this type of sequence we do backward induction, that is, we solve the expected value in every decision branch and we compare the result.