Question

Difference between decision under risk and decision under uncertainty

Answer 1

In our day to day life, there are many circumstances, where we have to take risks, which involves exposure to lose or danger. Risk can be understood as the potential of loss. It is not exactly same as uncertainty, which implies the absence of certainty of the outcome in a particular situation. There are instances, wherein uncertainty is inherent, with respect to the forthcoming events, i.e. there is no idea, of what can happen next.

So, in short, risk describes a situation, in which there is a chance of loss or danger. Conversely, uncertainty refers to a condition where you are not sure about the future outcomes.