AMBIGUITY IN RISK MANAGEMENT: A FRESH APPROACH
Authors: Michael A. Thompson
Published: May 2024
Abstract
<p>Decision making is an integral part of human existence, and the assessment of risk and uncertainty plays a pivotal role in this process. This paper aims to elucidate the subtle distinctions among various related terms, with a primary focus on risk, which directly influences financial and managerial decisions. It is essential to recognize that while some decisions may entail a high degree of certainty, others are riddled with uncertainty, ambiguity, and risk. In the realm of decision making, success or failure hinges on the ability to acknowledge and account for potential risk factors and uncertainties. Despite a substantial body of research in this domain, many studies fail to differentiate between risk and certainty, leading to a muddling of concepts and, at times, erroneous conclusions. This paper addresses this issue, aiming to provide clarity and differentiation among these closely related terms. The distinction between risk and uncertainty is pivotal, as it enhances the precision of decision-making models, preventing theoretical and empirical ambiguities. Through a conceptual approach complemented by mathematical and numerical applications, this paper dissects the various related terms, bringing clarity to the understanding of risk, an essential concept for financial and managerial decisions. </p>
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