Decisions under partial information

Yesterday, RISKVIEWS admitted puzzlement regarding the following question from a study about decisions involving risk:

The managers were asked what they did when faced with a problem that involves risk, and they ranked the choices below; in this order:

(1) Collect more information
(2) Check different aspects of the problem
(3) Actively work on the problem to reduce the risk
(4) Delay the decision

(5) Avoid taking risks
(6) Delegate the decision

Did you guess why?  Well the answer is pretty simple.  The six choices here did not include the possibility of actually making a decision!

Risk managers need to realize that the people actually running a business sometimes (often?) need to make decisions with very partial information.  All too often, risk managers act as second guessers.  Making judgements on decisions made with partial information, judgements that are based on much more information and also informed by time consuming and lengthy analysis.

The right answer for business decisions involving risk is not any of these choices:

(1) Collect more information
(2) Check different aspects of the problem
(3) Actively work on the problem to reduce the risk
(4) Delay the decision

(5) Avoid taking risks
(6) Delegate the decision

The risk manager would be much more useful to the organization if instead of the second guessing, they spent time developing ways to incorporate risk into decisions that are made under partial information.

Key to such a process would be the development of methods to estimate risk without full risk model runs, and without full data and without lengthy analysis.

 

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