A User-Oriented Model for Incorporating Risk into Short-Run Decisions

Abstract

Decision makers, comparing production alternatives and faced with risk, normally utilize a large amount of information from many sources. To compare alternatives, information must be organized and net returns calculated. Techniques producing single value estimates, such as partial budgeting, do not adequately utilize available information, produce enough information to facilitate an adequate comparison of alternatives, or account for risk and uncertainty. Furthermore, single value techniques fail to take into account skewed probability distributions of various alternative outcomes. Decision makers need methods to analyze data when making specific recurring short-run decisions in a risky and uncertain environment.