Managerial Economics and Strategy, 2/e

14 Managerial Decision Making Under Uncertainty

In America anyone can be president. That’s one of the risks you take.

—Adlai Stevenson

Learning Objectives

1. Show how to assess the degree of risk and likely profit from a risky undertaking.

2. Discuss how attitudes toward risk affect choice under uncertainty.

3. Describe actions that decision makers can take to reduce their risk.

4. Analyze whether to invest in uncertain situations.

5. Take account of psychological factors in analyzing decision making under uncertainty.

Managerial Problem BP’s Risk and ­Limited Liability

On April 20, 2010, in the Gulf of Mexico, a massive explosion occurred on the Transocean Deepwater Horizon oil rig, which was leased by the oil company BP. The explosion itself killed 11 ...