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The standard representation of individual decisions - Information about states of nature

Q: What are the two definitions of risk?

'a quantity susceptible of measurement' 'something distinctly not of this character'

4 important questions on The standard representation of individual decisions - Information about states of nature

In which further categories is non-certainty divided?

Risk
Uncertainty
Ignorance

What are the two definitions of risk?

"a quantity susceptible of measurement"
"something distinctly not of this character"

"We shall say that we are in the realm of decision making under: risk

if each action leads to one of a set of possible specific outcomes, each outcome occurring with a known probability. The probabilities are assumed to be known to the decision maker. For example, an action might lead to this risky outcome: a reward of $10 if a 'fair' coin comes up heads, and a loss of $5 if it comes up tails. Of course, certainty is a degenerate case of risk where the probabilities are 0 and 1.

"We shall say that we are in the realm of decision making under: uncertainty

if either action or both has as its consequence a set of possible specific outcomes, but where the probabilities of these outcomes are completely unknown or are not even meaningful." (Luce and Raiffa 1957, p. 13)

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Decision Theory: A Brief Introduction

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