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John Moffat.
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Joseph.Andrews
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Is it true that investors who want to invest money in some kind of project are called the decision-maker and they make the decision what the various outcomes are and whether probabilities can be determined based on past experience for such investment while reducing the risk and certainty from that investment project?
Could you tell me what is past experience mean by which can help determine the probabilities to reduce the riskiness from the investment?
Risk attitudes to different decision-makers:
1) Risk Seekers are investors who want the best option from Best possible outcomes from the profit table.
2) Risk Averser are investors who want the best option from the worst possible outcomes from the profit table.
3) Risk Neutral are investors who want the worst option from the best possible outcomes from the profit table (which is the most likely or average outcome from possible outcomes)
This is what I understood from your lecture. Is this correct too?
John Moffat
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Your first paragraph is correct.
As far as past experience is concerned it is looking at what has happened in the past as regards whatever it is that is uncertain (so, for example, if it is the level of demand that is uncertain they look at what levels have been in the past).
Your statements about risk attitudes are correct except for the third. Risk neutral decision makers base their decision on the expected (average) outcome (ignoring the fact that the actual outcome may be higher or lower than the expected outcome).
Joseph.Andrews
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