January 10th, 2018
Classify the decision-making environment in four commonly used categories and explain each of these. What are the most popular criteria used for making decisions under risk? Describe and compare.
Business decisions can either be made under the environment of certainty, risk, uncertainty and competition. Under certainty, the decision maker is fully aware of the results of alternative decisions. Under uncertainty, several outcomes can arise following any decision alternative taken. Under risk, there are different probabilities for alternative outcomes arising from the decision undertaken. Under competition the decision maker is not alone in the environment and hence will have to consider the effect of decisions made by competitors on his decision outcomes
The decision criterion popularly employed under conditions of risk is calculating the expected monetary value (EMV) of each decision alternative. The decision alternative with the maximum EMV is chosen.