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Risk Tolerance & Desirability

Risk Tolerance & Desirability

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Published by: api-25888404 on Nov 17, 2009
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12/07/2009

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Risk Tolerance& DesirabilityRisk Tolerance is. . .your willingness to takerisk in your quest forbetter consequences.How can you take yourpersonal risk toleranceinto account?Rob’s Cataract Surgery
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Alternatives Uncertainty Consequences
Cataract surgeryNo cataract surgeryDecision UncertaintySuccessful90%Unsuccessful10%20/30 vision,No fuzziness20/100 vision,Fuzziness20/50 vision,Fuzziness
Rob’s Cataract Surgery
 
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Are you:Risk Averse?Risk Neutral?Risk Seeking?What would youdecide?50/50 chance ofwinning $10,000 orlosing $5,000The more you wantthe betterconsequences, themore risk you’ll bewilling to take to getthem.What would youdecide?75/25chance ofwinning $10,000 orlosing $5,000The more likely thebetter outcomes,the more desirablethe risk will be toyou.What would youdecide?50/50 chance ofwinning $10orlosing $5
 
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IncorporatingRisk Tolerance:QualitativeApproach
Rob’s Cataract Surgery
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Alternatives Uncertainty Consequences
Cataract surgeryNo cataract surgeryDecision UncertaintySuccessful90%Unsuccessful10%20/30 vision,No fuzziness20/100 vision,Fuzziness20/50 vision,Fuzziness
Qualitative
Think hard aboutrelative desirabilityof each alternative’sconsequencesBalance desirabilityof consequenceswith their chancesof occurringChoose the mostattractive alternative

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