TUTORIAL
FIVE
DECISION
TREES FOR LAWYERS
By
Michael D. Freeborn
In Tutorial 5, we increase complexity further. For the first
time, we deal with the fact that, sometimes, the likelihood of one chance
outcome is influenced by some earlier chance outcome.
In this example, assume the facts of the earlier tutorials but assume
further that Count II also seeks punitive damages of $3
million. Under the law, assume that such damages are available only if
compensatory damages are first awarded and the jury further finds "gross
negligence" or "wilful and wanton misconduct."
The company thinks there's only a 5% likelihood of such a finding, but also
believes that the higher the compensatory damages are, the more likely it is
that the punitive damages will be higher.
There are no incremental costs of defending the punitive damages claim,
since the same documents and witnesses are involved.
Litigate or settle?
We've
been looking at a lot of decision trees and it's been a while since we
mentioned the Influence Diagram. The influence of one chance outcome on
another is reflected by an arrow in the Influence Diagram.
In
this example, here is what the resulting Decision Tree looks like.
When
we have the software run the analysis, you can see that it becomes impractical
to try to view the entire tree at once. So, in the remaining tutorials
you'll be happy to know that we will limit ourselves to schematics which
summarize the results and are more readable.
Ready for Tutorial 6?
Or would you like to go back?
Introduction
Tutorial 1
Tutorial 2
Tutorial 3
Tutorial 4
Copyright © 2001 Michael D. Freeborn. All rights reserved.
