Decision Tree Analysis is simply a process of analyzing an issue on a step-by-step basis while applying the principles of probability.
In its simplest terms think of a coin flip. Every time you flip a coin, there is a 50 per cent probability that it will come up heads.
But if you are trying to predict the probability of two consecutive coin flips coming up heads, then you multiply the two probabilities. Thus 50% X 50% = 25%. In other words, there is a 25 per cent chance of a coin flip coming up heads two times in a row or a 75 per cent chance that that will not happen.
Many lawsuits can be analyzed using this same methodology.
Imagine the following fact situation:
The plaintiff was fired, and the employer is alleging just cause.
The plaintiff’s lawyer believes that she has a good chance of beating the just cause issue and puts her chances at 75 per cent.
Of course, that means that there is a 25 per cent chance that just cause is upheld and the case is therefore worth zilch.
Assuming that just cause is upheld, an additional issue is that there is an employment contract which, if enforceable, would limit the plaintiff’s recovery to $10,000. Given the uncertainty of the law on this issue, the plaintiff’s lawyer thinks that her chances of defeating the contract are only 50 per cent.
If she can both beat the just cause argument and get around the contract, the next issue is whether or not the $25,000 bonus will be included in the award. If the bonus is included, the case is worth $100,000. If the bonus is excluded, the case is only worth $75,000. Again, given the uncertainty in the law, the lawyer estimates a 50 per cent risk factor to this issue.