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  • RISK & UNCERTAINTY IN DECISION MAKING Part 1

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    Eben Katewa
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    The document discusses risk and uncertainty in decision making. It defines risk as outcomes that can be quantified with probabilities, while uncertainty refers to unquantifiable outcomes. It also identifies three types of risk attitudes that decision makers can have: risk neutral, risk seeking, and risk averse. Payoff tables and different decision criteria are used to evaluate decisions under risk and uncertainty.

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    CIMA P2

    Original Title

    RISK & UNCERTAINTY IN DECISION MAKING part 1

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    The document discusses risk and uncertainty in decision making. It defines risk as outcomes that can be quantified with probabilities, while uncertainty refers to unquantifiable outcomes. It also identifies three types of risk attitudes that decision makers can have: risk neutral, risk seeking, and risk averse. Payoff tables and different decision criteria are used to evaluate decisions under risk and uncertainty.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    4 views32 pages

    RISK & UNCERTAINTY IN DECISION MAKING Part 1

    Uploaded by

    Eben Katewa
    The document discusses risk and uncertainty in decision making. It defines risk as outcomes that can be quantified with probabilities, while uncertainty refers to unquantifiable outcomes. It also identifies three types of risk attitudes that decision makers can have: risk neutral, risk seeking, and risk averse. Payoff tables and different decision criteria are used to evaluate decisions under risk and uncertainty.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 32

    P2

    RISK & UNCERTAINTY IN DECISION MAKING

    © 2020 Claremont Business School. All Rights Reserved.


    The difference between risk and uncertainty
    The decision making process faces the following problems:

     all decisions are based on forecasts

     all forecasts are subject to uncertainty

     this uncertainty needs to be reflected in the financial evaluation.

    The decision maker must distinguish between:

     risk – quantifiable – possible outcomes have associated


    probabilities, thus allowing the use of mathematical techniques

     uncertainty – unquantifiable – outcomes cannot be


    mathematically modelled.

    © 2020 Claremont Business School. All Rights Reserved.


    © 2020 Claremont Business School. All Rights Reserved.
    The risk attitude of decision makers

    Not all decision-makers will have the same attitude


    towards risk. There are three main types of decision-
    makers:

     Risk neutral

     Risk seekers

     Risk averse

    © 2020 Claremont Business School. All Rights Reserved.


    Pay off tables and decision criteria

    © 2020 Claremont Business School. All Rights Reserved.


    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.
    © 2020 Claremont Business School. All Rights Reserved.

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