Types of Risk and Decision Making under Conditions of Uncertainty

Among the types of risk, according to the degree and probability of adverse consequences, a distinction is made between justified and unjustified risk.

Justified risk — the choice of an activity that ensures the elimination or minimization of negative consequences, based on the subject's real capabilities and the conditions and requirements of the situation. To achieve the stated goal, a minimum of time and material and moral resources is expended, the interests of the subject or social group are realized, and a forecast is made of the impact of the results obtained on the near and more distant future. The degree of risk, the probability of adverse consequences, and their magnitude are insignificant in this choice. However, this factor may be disregarded in situations where behavior is aimed at obtaining a result that is especially significant for the individual or other subjects.

Unjustified risk is observed in situations that contain an element of threat. The decisions made quite often deviate from the recommendations of rational decision theory and do not lead to the best outcomes. Dangerous courses of action are preferred over safe ones in the absence of any external incentive to take risks or any visible advantages. Unwarranted risk is caused by affective needs, an overestimation of one's own abilities, and an inadequate representation in consciousness of information about the danger of the situation.

The probability of risk arising depends on the situation as it develops. Seeking to resolve a risky situation, the subject makes a choice and implements it in action. This process finds its expression in the concept of "risk." The latter exists both at the stage of choosing a decision (a plan of action) and at the stage of its implementation.

The foregoing allows risk to be defined as an activity associated with overcoming uncertainty in a situation of unavoidable choice, in the course of which it is possible to quantitatively and qualitatively assess the probability of achieving the expected result and the deviation from the goal. The quantitative and qualitative measure of the probability taken into account finds its expression in the term "degree of risk." The internal structure of the development of a risky situation consists of several stages:

• 1) awareness of the presence of an extraordinary situation and the impossibility of exiting it safely.
• 2) assessment of the degree of risk.

• 3) the emergence and formation of a motive to achieve success or avoid failure;
• 4) forecasting the probability of achieving the desired result and the possibility of negative consequences arising;
• 5) choosing risky activity or declining it (where such a possibility exists);
• 6) making a decision on the basis of all available information;
• 7) choosing the paths, means, and methods for implementing risky behavior;
• 8) exercising control over and correcting actions;
• 9) analyzing the consequences that have occurred, comparing what was achieved with what was desired;
• 10) compensating for incorrect actions in the event the situation is reversible.

The concept of "risk" characterizes an activity or a decision-making process under conditions of uncertainty. Uncertainty is not uniform in its form of manifestation or in its content; the sources of its occurrence are diverse and include:

• • the presence of elements of chance and spontaneity in socio-economic, political, and spiritual life;
• • the presence of other participants who choose and implement decisions;
• • the presence in social life of conflicting tendencies, possible opposition from the social environment or object, and the clash of contradictory interests;
• • a deficit of information about the object, process, or phenomenon in relation to which the decision is made, combined with the limitations of a person's ability to gather and process information, and the constant variability of information about many objects;
• • the limited, insufficient material, financial, labor, and other resources available when making and implementing decisions;
• • the relativity of the process by which a person cognizes surrounding reality (for example, the process of cognition constantly includes elements of uncertainty, since each new stage of it opens up new unsolved problems);

• • the impossibility of unambiguous cognition of an object given the level and methods of scientific cognition that have developed under the given conditions;
• • the relative limitation of a person's conscious activity, and the existing differences in socio-psychological attitudes, ideals, intentions, evaluations, and behavioral stereotypes.

The American researchers J. von Neumann and O. Morgenstern chose as axioms statements that, on the whole, are consistent with intuitive notions about assessing the consequences of decisions made by a rationally acting subject. The psychological theory of decision making was created in order to compensate for the shortcomings of everyday experience and thinking in situations of uncertainty.

Decision making comes down to the following algorithm:

• 1) precisely list the various possible courses of action in a situation of uncertainty or risk, which are called action alternatives a1, a2, ..., ak;
• 2) assess how desirable or undesirable each alternative will be for the person making the decision;
• 3) determine the degree of probability that each of the alternatives will be realized under the given conditions;
• 4) determine for which alternative the goal is maximally achievable.

The value or utility of choosing among alternative courses of action depends directly on the goals that the subject sets for themselves. The most important stage in the decision-making process is the assessment of the consequences of actions. Such an assessment is carried out by attributing to them a certain subjective value or utility, which may vary from one task to another.

The American I. Janis and the Australian L. Mann identify four strategies of behavior for a person facing the need to make an important decision :

• 1) pretend that nothing has happened and that there is no need to make a decision, and continue living without worrying about the consequences to which the development of events will lead;
• 2) apply a style of behavior that has always helped in a difficult situation before, without delving into the subtle particularities of the situation and without solving the problems that distinguish it from all previous ones;
• 3) avoiding the decisive actions that the pressing situation demands, the person fulfills themselves in areas where nothing depends on them (lying on the couch with a newspaper, criticizing the government's actions, making decisions about actions on a global scale, making plans that can never be carried out, putting forward demands that no one will fulfill, etc.);
• 4) puzzled by the situation, the person sets about gathering the information needed for the decision, but does so so thoroughly, exhaustively, and for so long that this becomes their new field of activity. Without drawing any closer to the decisive act, the person turns into a collector of information. Janis and Mann consider this situation to be a manifestation of emotional burnout.

Of course, there is also a decision-making strategy that promotes an optimal and favorable resolution of the situation. To find this strategy, let us turn to the analysis of risk on a quantitative level. A quantitative model of risk usually takes into account the probability of an undesirable event and the cost of the losses associated with it. S. V. Valdaytsev, Doctor of Economic Sciences, believes that any risk can be characterized quantitatively in two ways:

• 1) by the probability of an undesirable outcome of the event;
• 2) by the cost of the losses .

Most often, quantitative studies are used in the analysis of economic risks, which makes it possible to assess the material damage from a decision made. It is important to remember that there is no simple method or set of rules for making good decisions in all situations, since actions related to ensuring safety are too complex and vary in scale and character.