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What is a Decision Tree? - Easily Learn Key Points with Examples

What is a decision tree? What are the advantages and limitations of the model? How could I easily create a decision tree diagram? Simply follow this article to explore more about the decision tree model with understandable examples and steps.

Contents

What is a Decision Tree?

A decision tree is a diagram used by decision-makers to determine action process or display statistical probability. It provides an effective and simple way for people to understand the potential choices of decision-making and the range of possible outcomes based on a series of problems. Decision trees usually start with a single node and then decompose into additional nodes to show more possibilities (such as choosing the two sides of a coin). The farthest branch on the tree represents the final result. Decision makers eventually weigh each action plan against the risks in order to make the final choice. Moreover, a tree can be created longer or shorter in length as needed.

Let's Better Understand the Decision Tree Model with a Daily Example

Here we gonna use a simple example to show you how the model works. Imagine that you want to try a new mind mapping software for your daily use. There are two options for you: to buy a paid software or just download the free software. For the paid pathway, you can choose either software brand 1 or 2, in full payment or monthly payment with corresponding possibilities (70% or 30% in our example here). However, if you want to save money, you may choose to use the present software, or use your friends' paid software (here either David's or Jake's). If David is not busy then you may have more chances (here is 75%) to use his software. Feel free to click on the image to see more and feel download the original file to expand it based on your own needs.

software choosing decision tree example

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Decision Tree Key Symbols

To easily read a decision tree diagram, you need to understand the following nodes and symbols:

Name
Icons Shape
Descriptions
Decision Node
decision node
normally represented by squares to display the decisions to be made.   
Chance Node
chance node
usually in a circle to show the uncertain outcomes (with possibilities).           
End Node
end node
often shown by triangles to show the final results of a decision path.
Alternative Branch
alternative branch
reflects a possible result or action.
Rejected Alternative
rejected alternative
display an option that wasn't selected.

What are the Advantages and Drawbacks of Decision Tree?

The decision tree model is quite useful mainly because of the following points:

Although the model has many benefits to decision-makers, you should consider the following weak points:

Decision Tree Empirical Applications

Decision tree model has been used especially in the following categories:

Finance and Business Management 

The model is taught to business school and Economics students. Individuals or organizations can also evaluate costs, probabilities and benefits by drawing decision trees. Moreover, when a bank provides a loan to clients, it evaluates security through a series of questions based on a decision tree diagram including personal income, working life, credit card records and so on.            

Deep learning/Machine learning/Programming 

Decision trees can also be used to build automatic prediction models to mine data and evaluate multiple output results. This method is called decision tree learning. In this case, nodes represent data rather than decisions. Sometimes the predicted variables are real numbers, such as prices.            

Bioinformatics 

A decision tree can help aggregate different types of genetic data for the study of the interaction and sequence similarity between genes. One real-life example is that cancer researchers classify diseases into different types by observing patient data to prevent diseases. In this case, a decision tree is more like a simple and useful classification tool.

More Free Decision Tree Diagram Templates

Free download templates are available below to help your team to create a better decision tree diagram. Click on any of their names to see more details.

simple decision tree template decision tree template friends visiting decision example
Simple Template Industry Application Template Friends Visiting Decision Example

How to Create and Analyze Your Decision Tree Diagram?

You can choose either create a decision tree diagram by hand or using an easy diagram software. No matter which way to choose, you should follow these steps 1,2 and 3 below. Here we are using an easy example to show you the overall process. You can try yourself for more complex cases based on this simple example here.

Step 1: Make Your Initial Decision

First, you must start with a specific decision for your diagram, for example, choose to use technology A or B for your new mobile phone production. Once decided, create a small square at the left side of your drawing canvas. Next, draw a number of lines from the square to the right side with labels for more possible outcomes. In our example here, you can add the outcome of high or low profit.

build a decision tree structure

Step 2: Add Chance/Decision Nodes

Continuously expand your decision tree by inserting more decision nodes or chance nodes until every line reaches an endpoint (I.e. no more choices needed to be considered). Leave the space blank if the problem has been solved and add triangles to signify endpoints. Include the possibility of each result if you want to analyze options numerically.

add nodes in a decision tree

In our example above, the possibility of using technology A with a high profit outcome is 60%, and %40 for the low profit result. The possibility of using technology B with a high profit outcome is 70%, and 30% for the low profit result. You should also predict the most possible outcome for each of the endpoints, for instance, in our example, the outcome of a high profit after using technology A is $400,000.

Step 3: Evaluate Your Decision Tree

Now it's time to analyze your decision tree. Simply multiplying the value of the results by their possibility. Then sum up the total value of each node from right to left on your decision tree diagram to compare and make the final decision. Here is our example, the calculation result is:

decision tree outcome calculation

Since the sum of profit of option A ($320,000) is higher than that of option B ($255,000), so in theory, the company should use technology A as their final decision. Also, keep in mind that the risk preferences (low or high risk) of the decision maker may also lead to different final conclusion.

mobile phone production decision tree example

How to Make a Decision Tree Diagram with an Easy Software?

The overall step is quite simple even you don't have any diagram design experiences. Simply follow:

Step 1 - Start Your Work

Open Edraw Max and go to "Available Templates" - "Project Management" - "Decision Tree", then double-click to open a new drawing page. Alternatively, you can select one of the preset templates for your work.

choose a template

Step 2 - Add Content

Now you can drag and drop some decision tree nodes and symbols on your drawing canvas to build your structure. Also insert the possibility and branch description details if needed. Further expend your decision tree diagram by adding more nodes and branch lines until you reach the final endpoints.

drag and drop nodes

Step 3 - Format Your Diagram

Next, you can choose to change the default colors, sizes, diagram theme, background image and more to display a better visual presentation. When you have finished your work, you can export, print or share your files within just a few clicks.

customize diagram theme

Have a Try Right Now!

Now, you would surely understand all the key things about the decision tree. Why not try yourself with a free download software? Simply click on a preset template and then drag and drop any built-in decision tree symbols and node on your drawing board. Also feel free to change the default diagram theme based on the auto-create tools. Once done your work, quickly export to different formats or share on Edraw team cloud to discuss with your team. Click on the Download PC Version and Mac Version at the end of this page to start right now.

decision tree diagram software Edraw Max

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