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):

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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







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