The Kaplan and Garrick Definition of Risk and its Application to Managerial Decision Problems
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Authors
Wall, Kent D.
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2011
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Monterey, CA; Naval Postgraduate School
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Abstract
This paper discusses the application of the Kaplan and Garrick (K&G) definition of risk in the context of the managerial decision problem. These problems have a formulation that provides a different information structure than that originally considered by K&G. A fourth question must to be asked. The decision maker’s preferences must be ascertained. Without knowledge of decision maker preference there is no risk. The answer to the fourth question gives the decision maker’s payoff function, v(Y). A new triple {Y, PY, v(Y)} replaces the original triple of K&G, {F,PF,Y(F)} and permits an explicit quantification of risk.
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Working Paper
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DRMI Working Paper Series
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This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.