Which of the following is correct with respect to the concepts of certainty, risk, and uncertainty?
A) The majority of managerial decisions are made under conditions of certainty.
B) In a situation of risk, the alternatives are known, but costs are simply probabilities.
C) In a situation of uncertainty, the manager knows the alternatives that are available, but not the outcomes that will result from a specific alternative.
D) There is very little difference between the conditions of risk and uncertainty because in both the outcome is unclear.
E) Under a condition of certainty, profits are guaranteed.

Question

Quizplus · Accepted Answer

In a situation of risk, the alternatives are known, but the costs are simply probabilities. The decision maker can assess the likelihood of each outcome and make a decision accordingly. In contrast, under conditions of uncertainty, the manager does not know the potential outcomes of each alternative available. Certainty, as discussed in option E, is a situation in which the outcome is known with complete confidence, and therefore profits may not necessarily be guaranteed. Option A is incorrect because most decisions are made under conditions of risk or uncertainty rather than certainty. Option D is also incorrect because although the outcome may be unclear in both conditions, the level of knowledge about the alternatives and costs/probabilities differs between them.

Which of the Following Is Correct with Respect to the Concepts