RMI 2302 Nyce Module 6 Exam 2
-exam elaborations with 100% verified answer/solutions-
Excel & Succeed - academic year (2026-2027)
36 Q&A
Risk/Reward
the level of risk should have a commensurate level of reward
Individuals:
Measured using expected utility
-How much reward is necessary to induce you to take risk?
-Similarly, how much are you willing to pay to avoid risk? -This is actually the
entire basis of insurance, people willing to pay to avoid risk
Organizations
-No natural risk aversion
-Opportunity cost or cost of capital
-Project future cash flows from investments/opportunities
-Discount those cash flows back to present value based on cost of capital
-Cost of capital is commensurate with riskiness of firm.
-Orgs. use expected value.
Government/Society
-Measuring reward to society is difficult (reward of national parks?)
-Many times government is the only entity able to take on risk, regardless of
reward
, Bias
An inclination of temperaments or outlook to present or hold a partial
perspective at the expense of (possibly equally valid) alternatives in reference
to objects, people, or groups.
-Subjective view/probability - different from objective
-Many sources
-Alter the decision making
-Problem when it ends up being significantly different from the model
Donald Rumsfeld
There are the known knowns. These are the things we know. There are the
known unknowns. That is to say, there are things we know we don't know. But
there are also unknown unknowns. These are the things we don't know we
don't know.
Types of Bias
Age biases, Cultural biases, Experience biases, Gender biases, Media biases.
Cognitive biases
tendencies to think in certain ways that can lead to systematic deviations from
a standard of rationality or good judgment
Age biases
people in certain age groups tend to interpret information about risk differently
Cultural biases
Interpreting and judging phenomena by standards inherent to one's own
culture.
-certain culture view of risk differ
Experience biases
People who have experienced a low-probability/high-consequence event tend
to overestimate its likelihood,
(based on past events)
-people who have not experienced one, tend to underestimate
-exam elaborations with 100% verified answer/solutions-
Excel & Succeed - academic year (2026-2027)
36 Q&A
Risk/Reward
the level of risk should have a commensurate level of reward
Individuals:
Measured using expected utility
-How much reward is necessary to induce you to take risk?
-Similarly, how much are you willing to pay to avoid risk? -This is actually the
entire basis of insurance, people willing to pay to avoid risk
Organizations
-No natural risk aversion
-Opportunity cost or cost of capital
-Project future cash flows from investments/opportunities
-Discount those cash flows back to present value based on cost of capital
-Cost of capital is commensurate with riskiness of firm.
-Orgs. use expected value.
Government/Society
-Measuring reward to society is difficult (reward of national parks?)
-Many times government is the only entity able to take on risk, regardless of
reward
, Bias
An inclination of temperaments or outlook to present or hold a partial
perspective at the expense of (possibly equally valid) alternatives in reference
to objects, people, or groups.
-Subjective view/probability - different from objective
-Many sources
-Alter the decision making
-Problem when it ends up being significantly different from the model
Donald Rumsfeld
There are the known knowns. These are the things we know. There are the
known unknowns. That is to say, there are things we know we don't know. But
there are also unknown unknowns. These are the things we don't know we
don't know.
Types of Bias
Age biases, Cultural biases, Experience biases, Gender biases, Media biases.
Cognitive biases
tendencies to think in certain ways that can lead to systematic deviations from
a standard of rationality or good judgment
Age biases
people in certain age groups tend to interpret information about risk differently
Cultural biases
Interpreting and judging phenomena by standards inherent to one's own
culture.
-certain culture view of risk differ
Experience biases
People who have experienced a low-probability/high-consequence event tend
to overestimate its likelihood,
(based on past events)
-people who have not experienced one, tend to underestimate
