Chapter12

Chapter12 - MANAGERIAL ECONOMICS An Analysis of Business...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Chapter 12: Risk and Uncertainty Objectives: After studying this topic you should be able to: distinguish alternative states of information distinguish alternative attitudes to risk use expected values and expected utilities to take decisions in a situation of risk construct and use decision trees use alternative criteria for decision-making under uncertainty
Background image of page 2
3 Alternative States of Information Certainty : we have perfect information about future outcomes Risk : we know what future outcomes are possible and we can attach probabilities to each outcome Uncertainty : we do not know the precise nature of the outcomes or their probabilities
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Expected Monetary Values In a situation of RISK we could use Expected Monetary Values (EMV) to take a decision EMV = Σ p i V i Where: – p i = probability of the i’th outcome – V i = value of the i’th outcome
Background image of page 4
5 Expected Monetary Values Weather Probability Takings Sunny 0.2 $500 Cloudy 0.4 $300 Raining 0.4 $100
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Limitations of EMV Will you accept a 50/50 bet for $5? Probably YES
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 23

Chapter12 - MANAGERIAL ECONOMICS An Analysis of Business...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online