Calculate Expected Value with a Decision Tree

Should the team spend $90,000 launching a premium analytics add-on now, or stage the investment with a smaller pilot? Expected value: probability of outcome times payoff of outcome, summed across branches, followed by sensitivity analysis. The trap is treating the expected value as a guarantee. A positive EV can still produce a loss in the actual world, so risk tolerance and downside capacity still matter. Branches High adoption payoff = $260,000. Low adoption payoff = -$40,000. A decision tree starts by making the possible outcomes explicit. Probabilities Estimated probability: high adoption 35%, low adoption 65%. The probability is an assumption,…

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