Managerial Economics - Analysis Of Risk And Uncertainty
Uncertainty - Analysis Of Risk And Uncertainty
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Insurance ( Business risks are transferred through Insurance Policies)
Unsertainty
1. Insurance ( Business risks are transferred through Insurance Policies)
2.
Hedging is a mechanism whereby
the expected loss is to be offset by an expected profit from another contract.
3.
Diversification is a method of
managing the risk where the risk is spread to various investments and thus the
risk is minimized to each investment.
4.
Adjusting risk is the mechanism
whereby the provision is made to offset the expected loss.
There are four ways to manage the risk and uncertainty:
1. Insurance ( Business risks are transferred through Insurance Policies)
Decision Under Uncertainty:
1.
The maximax rule: Deals with selecting the best
possible outcome for each decision
and choosing the decision with the maximum payoff for all the best outcomes.
2. The Maximin rule: Deals with selecting a worst outcome for each investment decision and choosing the decision with the maximum worst payoff.
3. The Minimax rule: Deals with determining the worst potential regret associated with each, decision, then choosing the decision with the minimum worst potential regret.
The above mentioned criteria may help to measure the minimum expected opportunity loss. The game theory may help the manager to overcome various problems and at the same time to take a better decision in the uncertain business world with minimum risk. Computer based simulation methods are also available to solve this problem. Sensitivity analysis which is less expensive and commonly used can also be used.
2. The Maximin rule: Deals with selecting a worst outcome for each investment decision and choosing the decision with the maximum worst payoff.
3. The Minimax rule: Deals with determining the worst potential regret associated with each, decision, then choosing the decision with the minimum worst potential regret.
The above mentioned criteria may help to measure the minimum expected opportunity loss. The game theory may help the manager to overcome various problems and at the same time to take a better decision in the uncertain business world with minimum risk. Computer based simulation methods are also available to solve this problem. Sensitivity analysis which is less expensive and commonly used can also be used.
Tags : Managerial Economics - Analysis Of Risk And Uncertainty
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