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Sunday, January 12, 2014

Risk Aversion

In the last byte, we looked at the various models of decision making. In today's byte, we look at the concept of risk aversion.

Risk Aversion refers to the tendency to choose options that possess fewer risks and less uncertainty.

Individuals differ in their capacity to handle uncertainty and take risks. Some choose fewer risks and prefer familiarity and certainty while others prefer to take greater risks - they accept the loss in decisions and are willing to take more uncertainty.

Risk taking could be an extremely individualistic behavior, but it is also influences by organizational factors - If an upper-level manager could be discouraging of risk taking then the creativity and innovation could suffer. What is important tough, is that the company/organization should have a consistent attitude towards risk and not fluctuate.

Losses are bound to occur when one takes risk - however the key is not to throw the good money after the bad due to commitment - we shall discuss this in the next byte.

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