February 2016
Beginner to intermediate
500 pages
33h 40m
English
Content preview from Managerial Economics and Strategy, 2/eBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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14.1 Assessing Risk
Gregg, a promoter, is considering whether to schedule an outdoor concert on July 4th. Booking the concert is a gamble: He stands to make a tidy profit if the weather is good, but he’ll lose a substantial amount if it rains.
To analyze this decision Gregg needs a way to describe and quantify risk. A particular event—such as holding an outdoor concert—has a number of possible outcomes—here, either it rains or it does not rain. When deciding whether to schedule the concert, Gregg quantifies how risky each outcome is using a probability and then uses these probabilities to determine what he can expect to earn.
Probability
A probability is a number between 0 and 1 that indicates the likelihood that a particular outcome will occur. ...
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