Risk in a decision making context

Question 1

Economic subject

Answer 1

An individual, business or organisation

Question 2

What is the risk decision-making process

Answer 2

Economic subject > decision > action > outcomes

Question 3

2 types of probabilities

Answer 3

objective and subjective

Question 4

Objective probability

Answer 4

Based on numbers

Question 5

Subjective

Answer 5

Gueses and estimates not based on data

Question 6

Objective logic/ apiori

Answer 6

Rolling a dice leads to an equal chance - you know this before hand

Question 7

Statistics/ aposteriori

Answer 7

After an ever you look at empirical data

Question 8

Decoding

Answer 8

Choosing from different actions

Question 9

Expectancy value formula

Answer 9

Sum (P*outcome)

Question 10

What does variance measure

Answer 10

The spread - how far away the data is from the expectancy value

Question 11

How do you find the variance?

Answer 11

Sum of (x-exp. value)^2 (P)

Question 12

Standard deviations

Answer 12

Square root of the variance

Question 13

Variation coefficient

Answer 13

Relative measure of dispersion/spread

Question 14

When is the variation coefficient used?

Answer 14

When comparing 2 or more sets of data

Question 15

What type of attitude do risk-loving people have?

Answer 15

Risk sympathy

Question 16

What do risk-loving people look at in the probability distribution

Answer 16

spread

Question 17

What do risk-neutral people look at in probability

Answer 17

The expectancy-value alone

Question 18

What is the correct decision-making model for people who are risk-neutral

Answer 18

Expectancy value decision-making model

Question 19

Expectancy value decision-making model

Answer 19

sum of expected values

Question 20

What does Sigma / My decision model / (µ/σ)-Model account for?

Answer 20

Attitude to risk

Question 21

What probability metrics are taken into account in the sigma decision-making model?

Answer 21

Spread and dispersion

Question 22

What does a + g mean when there are losses

Answer 22

Risk aversion

Question 23

What does a - g mean when there are losses

Answer 23

Risk sympathy

Question 24

What is the formula for the sigma model

Answer 24

µ (expected value) + g*σ (standard deviation)

Question 25

If µ + g*σ > µ

Answer 25

g represents risk sympathy

Question 26

µ + g*σ < µ

Answer 26

g represents risk aversion

Question 27

What does a g of 0 indicate?

Answer 27

Risk natural

Question 28

Discus the limits to g

Answer 28

If g is too high then it can give illogical answers

Question 29

Why do risk-averse buy insurance?

Answer 29

They are willing to pay the loadings above the expectancy-value