Risk and Certainty Dissertation

Chapter 3: Risk and Concern

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Table of Material

01. Risk vs . uncertainty

Risk vs . uncertainty Options for uncertainty

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• Needed: Textbook (Chapter 3) • Recommended: Joe and Griffiths (Chapter ) • Even more readings:

Risk versus Uncertainty

01

Risk versus Uncertainness

Risk identifies outcome where range of potential future effects is known by pass encounter

Risk vs . Uncertainty

Uncertainty refers to results where estimates have been produced but not any probabilities can be attached to the expected final results

Sources of Doubt

Macroeconomics Hazards

Uncertainty

Politics change

Supply Conditions

Technology and development

Market require

Sources of Doubt

• Changing market demand:

– Will depend on consumer tastes and incomes – These changes could possibly be predictable or perhaps unforeseen

Sources of Uncertainty

• Changing supply conditions:

– Increases or perhaps decreases inside the price of raw materials – Shortages or gluts of important parts – Uncertainness on the supply side is based on decisions created by competitors or new traders about purchase in fresh capacity

Causes of Uncertainty

• Invention and Innovation:

– The outcome of this strategy is definitely uncertain since the outputs and usefulness in the innovations are unknown – Leader or perhaps follower

Types of Uncertainty

• Macroeconomics risks:

– Happen to be linked to never changes in the market but to the economy as a whole – Economic activity tends to be cyclical with intervals of development followed by periods of fall

Sources of Concern

• Political change:

– Changes of presidency may lead to undesirable conditions for business in general and some businesses particularly

Incorporating some uncertainty in decision making

• Expected value:

– May be the outcome awaited when the array of pay-offs have attached to all of them some estimate of goal probability or subjective likelihood of potential outcome – ������������������ = ������������ × ������������ + ������������ × ������������ + ������������ × ������������

Incorporating as well as uncertainty in to decision making

Combining time and uncertainness into making decisions

• Coefficient of Variance:

Incorporating some uncertainty into decision making

Including time and doubt into making decisions

• As well as discounting

Combining time and uncertainty into decision making

• Decision Trees:

– Choices are generally not made between a limited number of independent tasks but between a series of bonding and interdependent outcomes – The pattern of choices can be proven using a decision tree in which decisions are seen as branching out from another

Incorporating time and uncertainty into making decisions

Attitudes to Risk and Uncertainty

02

Attitudes to Risk and Uncertainty

Risk - against

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Risk -- neutral

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Risk - searching for

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Attitudes to Risk and Uncertainty

Behaviour to Risk and Concern

Attitudes to Risk and Uncertainty

Indifference curve examination of Risk and Come back

• Indifferent curve:

– Show distinct combinations of risk and return that give an individual the same level of satisfaction or electricity – To analyze the choice between expected...



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