Explain four Environments where decisions can be made

Explain four Environments where decisions can be made

(a) Certainty Environment:
Complete information is available regarding which state of nature will occur. Certainty models are used to make decisions in such this environment. The decision making process in this environment involves just picking the best alternatives. Certainty environment is an ideal case, which doesn’t exist, in real life.

(b) Risky Environment
Risk involves situations that may or may not occur but whose probability of occurrence may be calculated statistically and the frequency of their occurrence predicted from past records. In this environment, the expected monetary value (EMV) can be computed and the decision that maximizes the expected monetary value (EMV) chosen.

(c) Fundamental Uncertainty Environment:
Uncertain events have outcomes that cannot be predicted with statistical confidence, i.e. the decision-maker may not know all the variables that are relevant or can he estimate their probability. Decisions in this environment depend on the decision-makers attitude towards risk.
Risk taker - assumes the best alternative will occur. (Pessimistic) Risk averter – assumes the worst alternative will occur (Optimistic)

(d)Competitive Environment
Decisions of the company are affected by decisions of other companies who have opposing intentions/interests.

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Titany answered the question on October 8, 2021 at 09:25

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