Chapter 15

Risk Analysis: Walking Through the Fog

In This Chapter

arrow Playing with odds

arrow Making decisions with uncertain outcomes

arrow Developing decision-making criteria

arrow Determining the value of information

arrow Incorporating risk preferences

arrow Bidding to win

You may remember Mattel’s Magic 8 Ball. It’s a black globe that answers questions about the future. You hold it, ask a question, turn it over, and in a window the answer to your question appears. The answer I always seem to get is “Reply hazy, try again.” Such is the future — hazy. Or consider Yogi Berra’s contribution to planning, “If you don’t know where you’re going, you might wind up someplace else.”

To this point, I’ve examined decision-making in a certain or known environment. However, frequently the consequences or payoffs resulting from a decision or action are uncertain, depending upon factors outside your control. Therefore, it’s essential ...

Get Managerial Economics For Dummies now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.