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Unformatted text preview: TD-Risk?A famous economist, Franc Knight, coined a definition regarding the distinction between "risk" and "uncertainty": He defines risk as a situation where we know the possible outcome of a particular course of action and we also know the probabilities of different outcomes (think of an example). Uncertainty is defined as a situation where we don't know exactly all the possible outcomes of a particular course of action, not the probabilities of each outcome. What do you think is the typical situation in the business world: risk or uncertainty?Can you think of situations in the business world or other real life situations where you would need to estimate probabilities?Frank Knight articulates risk and uncertainty in economics, whereas at one extreme is pure risk where probabilities can be numerically assigned exactly from objective, physical data. This is actuarial risk. At the other extreme is pure uncertainty, which Knight claimed is unanalyzeable. Within the business world, most companies limit...
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This note was uploaded on 10/15/2011 for the course BUS BUS306 taught by Professor Dr.jolantaauden during the Spring '11 term at Trident Technical College.
- Spring '11