UTILITY THEORY : DECISION AND RISK ANALYSIS

Abstract

Decision plays an important role in all organizations. The world of business and especially real estate, involves millions of dollars. Indeed, decision making may constitute one of the highest form of human activity. This is confirmed by the fact that decision makers are among the most highly-paid staff in all business organizations. As the price to be paid for making the wrong decision is so high, the need for more reliable, more flexible and more risk conscious analytical tools for successful decision-making can no longer be ignored. Only a short-sighted investor would fall back on the out-moded ways in the home of tradition. Decision making involves choosing between a number of possible causes of action that could be taken. While we can never be adequately assured that a particular decision will turn out well, we owe it to ourselves, to be sure that the method used to make the decision was the best available. The aim of this dissertation is to explore the usefulness of cardinal utility theory as a risk analysis technique to assist decision makers in their decision making procedures.