Dealing with Uncertainty
A decision tree is a model of decisions and their outcomes. It has found widespread application because of its ease of implementation. Additionally, its compact tree representation is often useful for visualizing the breadth of possible outcomes.
Developing a New Pharmaceutical Drug
Now that you have watched Video 5, which presents a more complex example of using decision trees, the next activity will give you an opportunity to practice the skill of building and evaluating a decision tree.
Activity 7: Example of a complex decision tree: considering the development of a new pharmaceutical drug
A pharmaceutical company is considering developing a new drug. The key decision criteria are the development time, which the company would like to minimize. There are two approaches to developing the drug. The first is to base it on stem cell research ('stem'). There is a 0.4 probability that this approach would lead to a drug within 5 years. Otherwise, it will take up to 7 years (0.6 probability). Note these times are from the start of the use of this approach.
An alternative approach is based on a method called targeted delivery (‘TD'). This has a 0.3 probability of delivering a drug within 3 years. However, if at the end of 3 years there is no drug, the company would have to choose between switching to stem or carrying on with TD. At that point, the TD will have a 0.8 probability of delivering the drug within a further 2 years.
Although, if the drug has still not been delivered after a further 2 years, the company can still switch to the stem approach. Alternatively, persevering at this stage with TD will definitely yield a drug after a further 7 years.
Given the objective is to minimize development time, use a decision tree to determine what the company's strategy should be.
You can use pen and paper or a spreadsheet.