Risk and uncertainty

Question 1

Define risk?

Answer 1

Risk refers to the case where although the precise outcome of a course of action is not known, the probabilities of different outcomes occurring are known.

Question 2

What is uncertainty?

Answer 2

The case where not only is the precise outcome unknown but also the probabilities of different outcomes are not known

Question 3

How do risk decisions work?

Answer 3

If we are considering risk, an individual can make precise calculations of the expected value of the possible outcomes and then choose a suitable course of action which would yield the range of outcomes which have the best expected value.

Question 4

How do decisions with genuine uncertainty work?

Answer 4

The presence of genuine uncertainty precludes the possibility of precise calculations and it is likely that individuals and organisations will fall back on rules of thumb and hunches in making decisions

Question 5

How did Keynes view of risk differ from that of the neoclassicals?

Answer 5

‘A practical theory of the future is based in a flimsy foudnation it is subject to sudden and violent changes rather than being on of these pretty polite techniques which treis to deal with the present by abstracting from the fact we know very little about the future

Question 6

What is surplus?

Answer 6

A surplus product is production over and above the need of input replacement and workers’ consumption, that was appreciated as profit, interest and rent