This week we explore risk tolerance as it relates to decision-making. Risk toler

Question

This week we explore risk tolerance as it relates to decision-making. Risk tolerance involves risk attitudes of individuals as well as managing risk within an organization. When considering risks when making decisions, we can use desirability curves either with decision trees or weighted scoring models. The Lecture in the course shows using desirability curves with decision trees, while my recorded lecture applies them to weighted scoring models. Take a listen to this week’s recorded lecture: https://dvg.adobeconnect.com/p69hncsbgri/ What questions do you have about using desirability curves with either decision trees or weighted scoring models?

Explanation / Answer

The desirability curve represents the relationship between utility and potential payoff. The curve demonstrates the desirability of a specific outcome depending on a person's willingness to take risk.

My questions are:

a. How to effectively assign desirability scores to all consequence values? How can this be done objectively without letting subjectivity come in the process?

b. What is the best possible way to determine the various uncertainties, their possible outcomes, and the chances of occurring of these outcomes?

c. What should we do when each of the consequences can be described using multiple variables? How do we swap the multiple variables into a single numerical term?

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