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Mathematics INstruction Using Decision Science and Engineering Tools; Sponsored by the National Science Foundation, Directorate for Education and Human Resources; Industrial Engineering, Mathematics Education, and Operations Research Working Together
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Decision Trees: Auto Insurance

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We all make decisions everyday in our lives that involve uncertainty. Decision Trees is the first chapter in the Probabilistic material and introduces the concept of making decisions under uncertainty and risk. The decision tree methodology involves accounting for every possible decision and random event. The best alternative generally maximizes the expected value of profit or minimized the expected cost, however, other non-financial variables are also considered. Expected value does not also capture an individual’s risk tolerance. This risk aversion is the foundation for the insurance industry. The final problem in this chapter follows Jee Min a high school junior as he tries to determine how much collision insurance he needs.

         
Download this file (Ch10_Decision Trees_2011_05-03.pdf)Chapter 10 Decision Trees  (PDF)   941 Kb  
Last Updated on Saturday, 24 September 2011 14:07