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Decision Making Under Risk And Uncertainty

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Question:

Discuss about the Decision Making Under Risk and Uncertainty.

 

Answer:

Decision Making and Judgment

The decision can be defined as a conclusion that is derived after some considerations have been made. Also, it can deem as the tendency that people to be confident about something that they want to carry out. On the other hand, decision-making is the process of choosing the among various alternatives (Angie 1393). The process of decision-making comprises of choosing the right course of action from many possible options with the aim of arriving at a solution for a particular problem. Besides, uncertainty and risks are integrated during the process of decision making. Risks can be defined as those situations that involve exposure to some danger. On the other hand, uncertainty is the state of having limited knowledge where it 's hard to explain the current situation and the future outcome. 

Generally, when people are making decisions, they tend to ignore the normative rules and end up making decisions by intuition. In organizations, their culture and structure significantly influence the process of decision-making.  The uncertainties and risks of project developments come from the different sources of errors ranging from forecasting, data, and model errors.

According to studies, the strongest factors influencing uncertainty and risks came from the prediction errors (Glöckner 1).  On the other hand, the model and data errors had minor impacts. Analysts argue that situations do not predict what will happen, but show only what can happen from the available alternatives. The assumption is that economic decisions are made when a firm has a full condition of certainty regarding the producers and the consumers.

 

The people responsible for making decisions in organizations are the managers. They make decisions under risks and uncertainties. There are minimal studies on the manager’s risk attitudes in line with their real behavior when they are dealing with risk forecasts.  By now we know that people tend to ignore the normative rules when making their decisions (Saaty 83). However, in the recent past, there has been an increasing desire an interest in the relationship between the three theories of decision-making which are:

  • Descriptive
  • Normative and
  • Prescriptive

             Before managers formulate decision aids, it is significant that they understand the similarities and the differences that exist between the three theories.  More so, risk-taking and decision-making are context dependent thus making it necessary to learn about the decision-making context. This context impacts the type of decision analysis in several ways and the manner in which decisions are arrived at. All decisions take place in context (Standing 124). Therefore, the role of managers should be to examine the structure and the culture of their organizations since they significantly influence the decision-making process.  When it comes to evaluation of risks by administrators, it may mean different things to different people.  People will view risks differently depending on the field or area that they are working on.  It is necessary for managers to know the various decision-making areas for them to make appropriate and informed decisions. The areas include:

  • Certainty: Where the decision makers know the outcome of certain actions.
  • Risk: Each action has its possible outcome.
  • Uncertainty: The measures taken by decision makers may lead to consequences.
 

Works Cited

Angie, Amanda D., et al. "The influence of discrete emotions on judgement and decision-making: A meta-analytic review." Cognition & Emotion 25.8 (2011): 1393-1422.

Glöckner, Andreas, and Cilia Witteman. "Beyond dual-process models: A categorisation of processes underlying intuitive judgement and decision making." Thinking & Reasoning 16.1 (2010): 1-25.

Saaty, Thomas L. "Decision making with the analytic hierarchy process." International journal of services sciences 1.1 (2008): 83-98.

Standing, Mooi. "Clinical judgement and decision?making in nursing–nine modes of practice in a revised cognitive continuum." Journal of Advanced Nursing 62.1 (2008): 124-134.

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