Decisions Under Uncertainty (Decisiones Bajo Incertidumbre)
Grupo Consultor CAV Capital Advisory & Valuation
October 20, 2003
This is a course material from the book Managerial Decision Making Under Risk and Uncertainty. The book is originally in Spanish and is untitled as Decisiones empresariales bajo riesgo e incertidumbre. The level of the book is basic. We use very few mathematics and it is expected to be used by managers.
In this third chapter we deal with the idea of uncertainty (not having a probability distribution assigned to the events). We use the basic ideas of game theory to introduce the reader into the strategies when dealing with uncertainty. We illustrate the different approaches in game theory: minimax, maxmax, minimum regret, Laplace method, etc. We also present a simple method to estimate the probability of an outcome and one method to estimate a subjective probability distribution.
Note: Downloadable document is in Spanish
Number of Pages in PDF File: 48
Keywords: Uncertainty, game theory, subjective probability distributions
JEL Classification: G31
Date posted: May 16, 2007