Decision Tree:

An apartment owner is considering upgrading their units they rent to university students. Her options are:

(a) A large-scale remodeling. This could produce a substantial payoff in terms of increased revenue (and don't forget to minus costs!) but will require an investment of $1.2M. Market research shows that there is a 60% chance that a pay-off of $1.5M will be obtained, but there is a 40% chance that it will be only $700,000.

(b) A smaller scale project to redecorate and landscape. At $400,000 this is less costly but will produce a lower pay-off. Research data suggests a 30% chance of a gain of $1.1 M but a 70% chance of it being only $400,000.

(c) Continuing as is with no changes. It will cost nothing, but also results in no expected increase to payoffs.