Decision Making Under Risk Essay

Risk is the possibility of having difference in actual return and expected return on investment. Risk involves the possibility of losing your investment partly or completely. As in a given scenario, Susan has two options i.e. having a fixed income of $75,000 or commission in which there is a chance of earning $100,000. The risk assessment of Susan was changed because of changed situations. Initially, Susan was not aware of how much she can earn higher that’s why she did not take any chance. Later, she was told by her tax advisor that she also has to pay taxes hence she choose the more risky option so that she has to pay less tax. This shows that Susan want to save money as much as she can. In terms of cash inflow, Susan does not want to take a risk however in case of cash outflow, she is willing to take risks to save her money. If we compare the risk assessment behavior of fresh graduate and investor, we will come to know that investors are more accountable than a fresh college graduate is. Investors have to report to their employers that is why they tend to gain as much as they can with the low risk options. On the other hand, a college graduate is not answerable to any employer or any stakeholder. That is the major difference in risk assessment behavior. People who are more answerable to their managers tend to take less risk than people who are not answerable to their managers. The main concern of investors is to maximize their profit by taking as less risk as they can. Moreover, there is very chance of losing a job for employee that is why they tend to take a limited amount of risk.