About This Chapter
Financial Risk & Decision-Making - Chapter Summary
It's easy to study financial risk and decision-making when you have help from this engaging chapter. Our short video lessons cover expected value in probability, risk aversion and the common biases and judgment errors in decision-making. Before you take an important test or quiz, our lesson quizzes and chapter test can help you identify how well you understand these subjects. Use the video tabs feature in the Timeline to quickly access any section of a video that you'd like to see. If you have any questions along the way, reach out to one of our experts through the Dashboard. This chapter has been designed to assist you in achieving these goals:
- Deal with uncertainty and risk during decision-making
- Define the agency problem in finance
- Outline the impact of the utility theory on risk management
- Discuss quantification of uncertainty via probability models
- Detail the different types of risk attitudes
- Provide a definition and examples for the framing effect
- Explain how framing influences leadership effectiveness
- Outline risk management in a business case study for Nokia and Ericsson
1. Dealing with Risk & Uncertainty During Decision Making
Though every person has some experience making decisions, decision making can get more complex at high levels of thinking. This lesson discusses what it means to deal with risk and uncertainty during decision making.
2. The Agency Problem in Finance: Definition & Examples
The agency problem can be a really big issue in the finance world. Find out what an agency problem is and look at some real-world examples. Then, test yourself on your new knowledge.
3. Impact of the Utility Theory on Risk Management
This lesson looks at how consumers and businesses make big decisions based on utility theory, as well as on strictly monetary values. The method chosen can have a big impact on the decision and the risk profile of a business.
4. Framing Effect: Definition & Examples
This lesson goes over a well-known cognitive bias known as the framing effect. We'll first go over what it is using common examples and then dive into how it applies to the world of risk management.
5. Common Biases and Judgment Errors in Decision Making
In order for companies to be successful they have to be able to learn from their mistakes. One way they can do that is to identify biases and errors that might occur during decision making.
6. How Framing Influences Leadership Effectiveness
We all have our own views and opinions; however, many leaders use special techniques to influence these views and opinions. In this lesson, we will learn about one technique called framing and how it can be an effective tool for many companies.
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Other chapters within the Financial Accounting: Help and Review course
- Introduction to Accounting: Help and Review
- Financial Statements in Accounting: Help and Review
- Mechanics of the Accounting Cycle: Help and Review
- Project Evaluation & Analysis
- Preparing Financial Statements: Help and Review
- Internal Controls in Accounting: Help and Review
- Merchandising Operations and Inventory in Accounting: Help and Review
- Current and Long-Term Liabilities in Accounting: Help and Review
- Adjusting Accounts & Preparing Financial Statements: Help and Review
- Taxation of Business Entities
- Accounting Changes & Errors
- Classifying Costs in Accounting
- Cost Accounting Methods
- Cash Flow Statements & Disclosures
- Asset & Inventory Management
- Small Business Financing
- Small Business Accounting
- Financial Reporting
- Banking, Insurance & Monetary Policy
- Types of Financial Risk
- Credit Risk
- Derivatives in Finance Overview
- Capital Markets in Risk Management
- Managing Financial Risk