Risk and Uncertainty

Risk is the situation under which the decision outcomes and their probabilities of occurrences are known to the decision-maker, and uncertainty is the situation under which such information is not available to the decision-maker. Research on decision-making under risk and uncertainty has two broad streams: normative and descriptive. Normative research models how decision should be made under risk and uncertainty, whereas descriptive research studies how decisions under risk and uncertainty are actually made. Descriptive studies have exposed weaknesses of some normative models in describing people’s judgment and decision-making and have compelled the creation of more intricate models that better reflect people’s decision under risk and uncertainty.