When making decisions, managers face three different conditions: certainty, risk, and uncertainty. Let’s look at each.
The ideal situation for making decisions is one of certainty, which is a situation where a manager can make accurate decisions because the outcome of every alternative is known. For example, when South Dakota’s state treasurer decides where to deposit excess state funds, he knows exactly the interest rate being offered by each financial institution and the amount that will be earned on the funds. He is certain about the outcomes of each alternative. As you might expect, most managerial decisions aren’t like this.
Far more common is a situation of risk, conditions in which the ...
