PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Managerial Economics in a Global Economy Chapter 13 Risk.

Slides:

Advertisements

Similar presentations

Copyright © 2008 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Managerial Economics, 9e Managerial Economics Thomas Maurice.

Advertisements

Choices Involving Risk

Decision Theory.

Chapter 8: Decision Analysis

Introduction to Decision Analysis

Chapter 18 Statistical Decision Theory Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Statistics for Business and Economics 7 th.

Operations Management

Chapter 21 Statistical Decision Theory

Managerial Decision Modeling with Spreadsheets

Choices Involving Risk

Chapter 15: Decisions Under Risk and Uncertainty McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Managerial Economics in a Global Economy Chapter 13 Risk Analysis PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western,

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 Decisions under Risk and Uncertainty.

Hedging Foreign Exchange Exposures. Hedging Strategies Recall that most firms (except for those involved in currency-trading) would prefer to hedge their.

The Economics of Information. Risk a situation in which there is a probability that an event will occur. People tend to prefer greater certainty and less.

Slide 1  2002 South-Western Publishing Chapter 2 »Total, Average, and Marginal »Finding the Optimum Point »Present Value, Discounting & NPV »Risk and.

Uncertainty and Consumer Behavior

Farm Management Chapter 15 Managing Risk and Uncertainty.

International Finance Chapters 12, 13, and 14 Foreign Exchange Exposure.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Indifference Curves.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Supplement.

Chapter 14 Risk and Uncertainty Managerial Economics: Economic Tools for Today’s Decision Makers, 4/e By Paul Keat and Philip Young.

Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide 1 Managerial Economics.

8-1 CHAPTER 8 Decision Analysis. 8-2 LEARNING OBJECTIVES 1.List the steps of the decision-making process and describe the different types of decision-making.

Copyright © 2005 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Managerial Economics Thomas Maurice eighth edition Chapter 15.

An Introduction to Decision Theory (web only)

Risk & Business Risk Sergeeva Irina Ph.D., Professor.

© Mcgraw-Hill Companies, 2008 Farm Management Chapter 15 Managing Risk and Uncertainty.

Version 1.2 Copyright © 2000 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to:

Managing Transaction Exposure

Lecture: Decision making under uncertainty Date:

© 2012 Pearson Education, Inc. All rights reserved Transaction Exchange Risk Transaction exchange risk – possibility of taking a loss in foreign.

Chapter 13 Risk Analysis Dr Loizos Christou. Risk and Uncertainty Risk –Situation where there is more than one possible outcome to a decision and the.

Chapter 5 Uncertainty and Consumer Behavior. ©2005 Pearson Education, Inc.Chapter 52 Q: Value of Stock Investment in offshore drilling exploration: Two.

Chapter 5 Choice Under Uncertainty. Chapter 5Slide 2 Topics to be Discussed Describing Risk Preferences Toward Risk Reducing Risk The Demand for Risky.

1 Ch 7: Project Analysis Under Risk Incorporating Risk Into Project Analysis Through Adjustments To The Discount Rate, and By The Certainty Equivalent.

Chapter McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Risk and Capital Budgeting 13.

Decision Analysis Mary Whiteside. Decision Analysis Definitions Actions – alternative choices for a course of action Actions – alternative choices for.

Models for Strategic Marketing Decision Making. Market Entry Decisions To enter first or to wait Sources of First-Mover Advantages –Technological leadership.

Derivatives  Derivative is a financial contract of pre-determined duration, whose value is derived from the value of an underlying asset. It includes.

Fundamentals of Decision Theory Chapter 16 Mausam (Based on slides of someone from NPS, Maria Fasli)

Lecture one © copyright ： qinwang 2013 SHUFE school of international business.

Decision Theory McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Risk Analysis. Topics - Risk and Uncertainty - General Risk Categories - Probability - Probability Distributions - Payoff Matrix - Expected Value - Variance.

Review Monopoly Summary A monopoly is a firm that is the sole seller in its market. It faces a downward-sloping demand curve for its product. A.

SUPPLEMENT TO CHAPTER TWO Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 DECISION MAKING 2S-1 Chapter 2 Supplement Decision Making.

Chapter 11 – Introduction to Risk Analysis u Why do individuals, companies, and stockholders take risks?

Foreign Exchange Exposure. What is Foreign Exchange Exposure? Simply put, foreign exchange exposure is the risk associated with activities that involve.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Managerial Economics in a Global Economy Chapter 2 Optimization.

DECISION MODELS. Decision models The types of decision models: – Decision making under certainty The future state of nature is assumed known. – Decision.

Part Three: Information for decision-making Chapter Twelve: Decision-making under conditions of risk and uncertainty Use with Management and Cost Accounting.

DECISION THEORY & DECISION TREE

Chapter 5 Supplement Decision Theory.

Chapter 15: Decisions Under Risk and Uncertainty

Decisions Under Risk and Uncertainty

Chapter 19 Decision Making

MANAGEMENT AND COST ACCOUNTING

Ekonomi Manajerial dalam Perekonomian Global

Managerial Economics in a Global Economy

Choices Involving Risk

Ekonomi Manajerial dalam Perekonomian Global

Decision Analysis.

Chapter 15 Decisions under Risk and Uncertainty

Decision Making Supplement A

Chapter 15: Decisions Under Risk and Uncertainty

Chapter 4 Risk and Return-Part 1.

Chapter 4 Risk and Return-Part 1.

Presentation transcript:

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Managerial Economics in a Global Economy Chapter 13 Risk Analysis

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Risk and Uncertainty Risk –Situation where there is more than one possible outcome to a decision and the probability of each outcome is known Uncertainty –Situation where there is more than one possible outcome to a decision and the probability of each outcome is unknown

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions Probability –Chance that an event will occur Probability Distribution –List of all possible events and the probability that each will occur Expected Value or Expected Profit

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions Calculation of Expected Profit

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions Discrete Probability Distribution –List of individual events and their probabilities –Represented by a bar chart or histogram Continuous Probability Distribution –Continuous range of events and their probabilities –Represented by a smooth curve

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions Discrete Probability Distributions Project A; E(  ) = 500, Low RiskProject B: E(  ) = 500, High Risk

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions Continuous Probability Distributions Project A: E(  ) = 500, Low RiskProject B: E(  ) = 500, High Risk

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions An Absolute Measure of Risk: The Standard Deviation

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions Calculation of the Standard Deviation Project A

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions Calculation of the Standard Deviation Project B

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions The Normal Distribution

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Measuring Risk Probability Distributions A Relative Measure of Risk: The Coefficient of Variation Project AProject B

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Utility Theory Risk Averse –Must be compensated for taking on risk –Diminishing marginal utility of money Risk Neutral –Are indifferent to risk –Constant marginal utility of money Risk Seeking –Prefer to take on risk –Increasing marginal utility of money

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Utility Theory

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Utility Theory Utility Function of a Risk Averse Manager

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Value of the Firm = Net Present Value Risk-Adjusted Discount Rate Adjusting Value for Risk

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Adjusting Value for Risk

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Adjusting Value for Risk Certainty Equivalent Approach Certainty Equivalent Coefficient

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Other Techniques Decision Trees –Sequence of possible managerial decisions and their expected outcomes –Conditional probabilities Simulation –Sensitivity analysis

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved.

Uncertainty Maximin Criterion –Determine worst possible outcome for each strategy –Select the strategy that yields the best of the worst outcomes

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Uncertainty: Maximin The payoff matrix below shows the payoffs from two states of nature and two strategies.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Uncertainty: Maximin The payoff matrix below shows the payoffs from two states of nature and two strategies. For the strategy “Invest” the worst outcome is a loss of 10,000. For the strategy “Do Not Invest” the worst outcome is 0. The maximin strategy is the best of the two worst outcomes - Do Not Invest.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Uncertainty: Minimax Regret The payoff matrix below shows the payoffs from two states of nature and two strategies.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Uncertainty: Minimax Regret The regret matrix represents the difference between the a given strategy and the payoff of the best strategy under the same state of nature.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Uncertainty: Minimax Regret For each strategy, the maximum regret is identified. The minimax regret strategy is the one that results in the minimum value of the maximum regret.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Uncertainty: Informal Methods Gather Additional Information Request the Opinion of an Authority Control the Business Environment Diversification

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Foreign-Exchange Risk Foreign-Exchange Rate –Price of a unit of a foreign currency in terms of domestic currency Hedging –Covering foreign exchange risk –Typically uses forward currency contracts

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Foreign-Exchange Risk Forward Contract –Agreement to purchase or sell a specific amount of a foreign currency at a rate specified today for delivery at a specified future date. Futures Contract –Standardized, and more liquid, type of forward contract for predetermined quantities of the currency and selected calendar dates.

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Information and Risk Asymmetric Information –Situation in which one party to a transaction has less information than the other with regard to the quality of a good Adverse Selection –Problem that arises from asymmetric information –Low-quality goods drive high-quality goods out of the market

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Information and Risk Moral Hazard –Tendency for the probability of loss to increase when the loss is insured Methods of Reducing Moral Hazard –Specifying precautions as a condition for obtaining insurance –Coinsurance