Decision making environment-risk seeking-neutral-averse, Managerial Accounting

Risk seeking: 

A risk seeker is a decision maker who is concerned in the best likely outcome no matter how small the chance that they might take place i.e. he takes high risks in anticipation of high profitability. For such decision maker, the marginal usefulness for wealth is positive and rising.

Risk neutral:

A decision maker is risk neutral when he is concerned with what will be the most probable outcome i.e. he is unconcerned to risk.  For such a decision maker the marginal usefulness of wealth is steady and positive.

Risk Averse:

A decision maker is risk reluctant, when he acts on the supposition that the worst possible outcome will take place, and selects the decision with the least risk possible. For such decision maker, the marginal usefulness of wealth is positive though reducing.

These risk attitudes can be described by:

(i) Risk neutral seeking
(ii) Risk averse
(iii) Risk seeking

Std deviation (δ):

1996_Untitled.jpg

 

Here:

MVt is the monetary value under condition t.
EMV is the predictable monetary value
Pt is the probability of condition t taking place
n is the number of various conditions.

Coefficient of variation

It is an associative measure of risk and it is employed to compare alternatives of various magnitudes depend on their risk return consideration.

C V  =  δ/ EMV
EMV = ε MVt Pt

 

Posted Date: 12/4/2012 7:00:31 AM | Location : United States







Related Discussions:- Decision making environment-risk seeking-neutral-averse, Assignment Help, Ask Question on Decision making environment-risk seeking-neutral-averse, Get Answer, Expert's Help, Decision making environment-risk seeking-neutral-averse Discussions

Write discussion on Decision making environment-risk seeking-neutral-averse
Your posts are moderated
Related Questions
State the Penetration pricing As opposed to the skimming pricing the objective of penetration pricing is to gain a foothold in a highly competitive market. The objective of thi

Working capital is a necessary requirement for any type of business activity. Banks in India nowadays constitute the main suppliers of working capital credit to any type of busines

Pricing decision Price may be defined as the exchange of goods or services in terms of money. Without price firm can survive in the society. If money is not there exchange of g

Describe Committed fixed costs Committed fixed costs are those fixed costs that arise from the possession of 1. Plant, building and equipment (for example, depreciation, re

Incremental budgeting Incremental budgeting uses a budget prepared using a last period budget or actual performance as a base with incremental amount asses for the new budget p

Answer each of the following independent questions in the space provided on page 11. Round all computations to the nearest dollar. a) Company A deposited $15,000 in a savings ac

M/s ABC has an existing sales of Rs.50 lakhs and permits a credit period of 30 days to its customers.  The firm cost of capital is 10% and the ratio of variable cost to sales is 85

The following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they will

The Ragan Corporation uses a process cost system. The company started March with 2,300 units in Work in Process-Dept. A. During the month 4,000 units were started. At the end of th

Assumptions Underlying the CVP Analysis CVP analysis as discussed above is based on certain assumptions . if these assumptions are not recognized then serious error may result