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Hi Mr John,
I watched all the lecture of risk and uncertainty but I didn’t see any lecture about sensitivity or simulation? Please explain this terms for me, I don’t understand what is it and the purpose of it?
Thank you very much, 🙂Both are relatively unimportant for Paper F5 (sensitivity itself becomes a lot more important in Paper F9 and they are both covered in our F9 lectures).
Sensitivity is calculating what percentage change in one of the uncertain variables would result in the decision changing. If the percentage is very small then you want to try and reduce the uncertainty if possible, or might even decide not to go ahead.
Simulation is where you look at the outcome resulting from all possible values of all the uncertain variables, and the associated probabilities – then you can find the overall probability of a positive outcome (but calculations of this are not in the syllabus).
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