Essay (Due Date: January 29, 2017) Please Read and review for assignment: Chapter 3: Decision Analysis,pp. 67-85; and Section 3.10, Utility Theory on pp. 88-89 In an essay of no less than four pages,...

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Introduction
The decision making process becomes more complicated and difficult task for the managers
if there is high level of risk or uncertainty attached in the workings of the organization. There
is huge difference between ‘risk’ and ‘uncertainty’. When a person knows the probability of
getting a thing or losing it, it is known as ‘risk’. On the other hand, when the conditions in
future are not known, there is uncertainty in the situation. It is quite difficult to measure the
uncertainty in the present condition but risk can be measured in the overall situation. It is
possible because chances of outcome are already known in case of risk. The only need is to
assign the probabilities to each of the outcome so that chances of occurrence of an event are
already known. There are certain rules which need to be fulfilled which are directly related to
the decision making for the characteristics in the distribution of the outcomes by assigning
different probabilities under risk. These characteristics include the mean, variance, standard
deviation and the coefficient of variation of the given distribution (Rubinstein, October
1988).
In order to make decisions which would help in maximizing the profits, the managers need to
take such decisions which has minimum risk involved by finding the various mean and
variance values on the basis of the mean variance rules and the variation rules of the
coefficients. However, they would only guide the managers in making decisions but the
actual decisions of the managers would depend majorly over the willingness of the owner to
take the business risk. The owner or the manager might be risk averse, risk lover or risk
neutral. They all represent the risk taking capability of the managers.
Decision under uncertainty
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It is based on the assumption that there are pay-offs on the basis of which better decisions can
be taken. When there is higher and larger values assigned for important variables like total
sales, return and investments, etc. it makes easy to decide about any particular decision like
purchasing any input or setting up a new plant. For the uncertainty conditions, there are
several criteria which are being set up for taking better and reliable decisions. These include
Optimistic, Pessimistic, Criterion of Realism, Equally likely, and Minimax regret.
The basis of the decisions theory under uncertainty is more like gamble. The situation of
uncertainty can be overcome by having more...