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Decision Tree Value Calculator

Work out decision tree value instantly with clear inputs, formula shown and shareable results.

About Decision Tree Value Calculator

A decision tree rolls back from the end: at each chance node take the probability-weighted average of the branches, then at each decision node subtract the cost of the choice and pick the highest value. This calculator evaluates one two-branch node, which is the building block of any larger tree.

Formulas

Chance node value

EV = P(high) x High value + (1 - P(high)) x Low value

Decision node value

Net value = EV - Cost of the option

Worked example

With the default values below, Decision Tree Value Calculator returns Expected value net of cost of $580,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Cost of pursuing the option
400,000
Probability of the high outcome
40
Value of the high outcome
2,000,000
Value of the low outcome
300,000

Results

Expected value net of cost
$580,000.00
Expected value at the chance node
$980,000.00
Contribution of the high branch
$800,000.00
Decision
Pursue — positive expected value

Step by step

  1. 1Values used
  2. 2Chance node value
  3. 3Decision node value
  4. 4Expected value net of cost= 580,000.00
  5. 5Expected value at the chance node= 980,000.00
  6. 6Contribution of the high branch= 800,000.00
  7. 7Decision= Pursue — positive expected value

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax or compounding frequency into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

What if there are more than two outcomes?

Add branches and weight each by its probability; the probabilities must sum to 100%. The roll-back logic is unchanged.

Should I discount future branch values?

Yes if the outcomes are years apart. Discount each branch to present value before weighting, otherwise slow high-value branches are overvalued.

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