Here are the basic technical details for building the decision tree for your situation:

1. Identify the decisions or actions and outcomes, results, or chance events that are relevant to your situation. Decisions can be followed by other decisions. Decisions, ultimately, have outcomes. Relate each decision to its possible outcomes or results.
2. Determine all the possible sequences of decisions and outcomes. It is best to draw the decision tree for your situation on a sheet of paper showing these sequences. Label the nodes of the tree N1, N2, N3, etc., where N1 is the start or root node. Each node on the tree can be a decision node or an outcome node. Decision nodes are followed by decisions, and outcome nodes by outcomes.

3. For each decision, determine its cost (loss) or benefit, if any. If you do not know its exact cost or benefit, estimate or determine a possible range for the cost or benefit.
4. For each intermediate outcome, specify the probability of the outcome's occurrence, and any associated cost or benefit. Note that the sum of the probabilities of all the possible outcomes that branch out of an outcome node must add to 100%.
5. For each final outcome, specify its payoff and the associated probability. If you do not know the exact payoff, estimate it, or determine its possible range.

In financial decisions, you can measure costs, benefits, and payoffs in terms of dollars, deutsche marks, francs, yen, yuans, liras, pesos, etc. Where monetary values are not appropriate, you can use utilities. For example, in choosing between surgical or medical management of coronary heart disease, you can use quality-adjusted life years.¹

When your decisions span more than a few months, all costs, benefits, and payoffs must be appropriately discounted, using the appropriate discount rate.²

When you specify ranges for costs, benefits, or payoffs, we can conduct what is called a sensitivity analysis. Such analysis shows how the EMVs or expected utilities of the nodes vary with simultaneous changes in costs, benefits, and payoffs. Costs, benefits, and payoffs are varied simultaneously, from their initial values to their final values.

Once you have completed the above steps, you have the KNOWLEDGE BASE of your Decision Tree.

Sources:
¹ See Milton C. Weinstein, Harvey V. Fineberg, et al. Clinical Decision Analysis. Philadelphia, PA: W.B. Saunders Company, 1980, at 215-220 [Outcomes With Multiple Attributes: Trade-Offs Between Longevity And Quality Of Life].
² See, for example, P.G. Moore and H. Thomas. The Anatomy of Decisions. P.G. Moore, H. Thomas, 1976. New York, NY: Penguin Books Ltd., at 32.