ANALYSIS AND DECISION MAKING

A ASSIGNMENT REPORT

ON

“DECISION TREE”

In partial fulfillment of

Integrated Master of Business Administration

Submitted By-

Sandeep Khalkho

CUJ/I/2015/IMBA/29

Semester VII

Under the supervision of

Ms. Pragati Kumari

(Assistant Professor)

Dept. of Business Administration

 ACKNOWLEDGEMENT

Every project big or small is successful largely due to the effort of a number of
wonderful people who have always given their valuable advice or lent a helping hand. I
sincerely appreciate the inspiration; support and guidance of all those people who have
been instrumental in making this project a success.

I, Sandeep khalkho, the student of Central University of Jharkhand (Centre for

Business Administration), I would like to express my gratitude to Asst. Prof Ms Pargti
kumari, Centre for Business Administration for the guidance, support and mentoring
provided during our Integrated MBA Program.my Assigment entitled “Decision Tree ”

Date:-
 Decision Tree

Definition:- A decision tree is a graphical representation of specific decision situations

that are used when complex branching occurs in a structured decision process. A
decision tree is a predictive model based on a branching series of Boolean tests that use
specific facts to make more generalized conclusions.

The main components of a decision tree involve decision points represented by nodes,
actions and specific choices from a decision point. Each rule within a decision tree is
represented by tracing a series of paths from root to node to the next node and so on until
an action is reached.

A decision tree is a map of the possible outcomes of a series of related choices. It allows
an individual or organization to weigh possible actions against one another based on their
costs, probabilities, and benefits. They can be used either to drive informal discussion or
to map out an algorithm that predicts the best choice mathematically.

A decision tree typically starts with a single node, which branches into possible
outcomes. Each of those outcomes leads to additional nodes, which branch off into other
possibilities. This gives it a treelike shape.

There are three different types of nodes: chance nodes, decision nodes, and end nodes. A
chance node, represented by a circle, shows the probabilities of certain results. A
decision node, represented by a square, shows a decision to be made, and an end node
shows the final outcome of a decision path.
Decision trees can also be drawn with flowchart symbols, which some people find easier
to read and understand.

Decision tree symbols

Shape Name Meaning

Decision node Indicates a decision to be

made

Chance node Shows multiple uncertain

outcomes

Alternative Each branch indicates a

branches possible outcome or action

Rejected Shows a choice that was

alternative not selected

Endpoint node Indicates a

How to draw a decision tree

To draw a decision tree, first pick a medium. You can draw it by hand on paper or a
whiteboard, or you can use special decision tree software. In either case, here are the
steps to follow:

1. Start with the main decision. Draw a small box to represent this point, then draw a
line from the box to the right for each possible solution or action. Label them
accordingly.

2. Add chance and decision nodes to expand the tree as follows:

 If another decision is necessary, draw another box.

 If the outcome is uncertain, draw a circle (circles represent chance nodes).

 If the problem is solved, leave it blank (for now).

From each decision node, draw possible solutions. From each chance node, draw lines
representing possible outcomes. If you intend to analyze your options numerically,
include the probability of each outcome and the cost of each action.

3. Continue to expand until every line reaches an endpoint, meaning that there are no
more choices to be made or chance outcomes to consider. Then, assign a value to each
possible outcome. It could be an abstract score or a financial value. Add triangles to
signify endpoints.

With a complete decision tree, you’re now ready to begin analyzing the decision you
face.
Decision tree analysis example

By calculating the expected utility or value of each choice in the tree, you can minimize
risk and maximize the likelihood of reaching a desirable outcome.

To calculate the expected utility of a choice, just subtract the cost of that decision from
the expected benefits. The expected benefits are equal to the total value of all the
outcomes that could result from that choice, with each value multiplied by the likelihood
that it’ll occur. Here’s how we’d calculate these values for the example we made above:

When identifying which outcome is the most desirable, it’s important to take the decision
maker’s utility preferences into account. For instance, some may prefer low-risk options
while others are willing to take risks for a larger benefit.

When you use your decision tree with an accompanying probability model, you can use
it to calculate the conditional probability of an event, or the likelihood that it’ll happen,
given that another event happens. To do so, simply start with the initial event, then
follow the path from that event to the target event, multiplying the probability of each of
those events together.

In this way, a decision tree can be used like a traditional tree diagram, which maps out
the probabilities of certain events, such as flipping a coin twice.
Advantages and disadvantages

Decision trees remain popular for reasons like these:

 How easy they are to understand

 They can be useful with or without hard data, and any data requires minimal
preparation

 New options can be added to existing trees

 Their value in picking out the best of several options

 How easily they combine with other decision making tools

CHANGE
VARIABLE

DECISION

OBJECTIVE
Decision trees in machine learning and data mining

A decision tree can also be used to help build automated predictive models, which
have applications in machine learning, data mining, and statistics. Known as decision
tree learning, this method takes into account observations about an item to predict that
item’s value.

In these decision trees, nodes represent data rather than decisions. This type of tree is
also known as a classification tree. Each branch contains a set of attributes, or
classification rules, that are associated with a particular class label, which is found at the
end of the branch.

These rules, also known as decision rules, can be expressed in an if-then clause, with
each decision or data value forming a clause, such that, for instance, “if conditions 1, 2
and 3 are fulfilled, then outcome x will be the result with y certainty.”

Each additional piece of data helps the model more accurately predict which of a finite
set of values the subject in question belongs to. That information can then be used as an
input in a larger decision making model.

Sometimes the predicted variable will be a real number, such as a price. Decision trees
with continuous, infinite possible outcomes are called regression trees.

For increased accuracy, sometimes multiple trees are used together in ensemble methods:

 Bagging creates multiple trees by resampling the source data, then has those trees
vote to reach consensus.

 A Random Forest classifier consists of multiple trees designed to increase the

classification rate

 Boosted trees that can be used for regression and classification trees.

 The trees in a Rotation Forest are all trained by using PCA (principal component
analysis) on a random portion of the data

A decision tree is considered optimal when it represents the most data with the fewest
number of levels or questions. Algorithms designed to create optimized decision trees
include CART, ASSISTANT, CLS and ID3/4/5. A decision tree can also be created by
building association rules, placing the target variable on the right.
Each method has to determine which is the best way to split the data at each level.
Common methods for doing so include measuring the Gini impurity, information gain,
and variance reduction.

Using decision trees in machine learning has several advantages:

 The cost of using the tree to predict data decreases with each additional data point

 Works for either categorical or numerical data

 Can model problems with multiple outputs

 Uses a white box model (making results easy to explain)

 A tree’s reliability can be tested and quantified

 Tends to be accurate regardless of whether it violates the assumptions of source

data

But they also have a few disadvantages:

 When dealing with categorical data with multiple levels, the information gain is
biased in favor of the attributes with the most levels.

 Calculations can become complex when dealing with uncertainty and lots of
linked outcomes.

 Conjunctions between nodes are limited to AND, whereas decision graphs allow
for nodes linked by OR.