Explain the difference between risk and ambiguity. How might decision making differ for a risky versus an ambiguous situation?
The definition of risk given by Richard L. Daft is such as follows: a decision has clear-cut goals and good information is available, but the future outcomes associated with each alternative are subject to chance.1 The definition he gives for ambiguity in the business sense is this: the goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable.1 Clearly the two terms have their differences. According to Lyle Shephard (a potato farmer) one could compare risk to a farmer.2 The farmer has clear-cut goals (to plant seeds and harvest a crop) and has good information available (farmer has farmed before and knows what he or she needs to do to make a profit) but no matter how much information the farmer has, and how clear his or her goals are, the outcome is left up to chance. It may rain too much and drown the crop, or the farmer may have a drought, in which case the crop will dry up and wither away. An ambiguous decision is more like when a teacher gives a student an assignment, but gives him or her no topic, no direction, or guidelines whatsoever. This is by far the hardest decision making situation to be in. Decision making in either situation is very different. The farmer might need to make a minor adjustment to his plan and decide how much to water his crop in order to meet his goals. The student might not even know where to start making decisions in the first place. The difference in the two is that with risk, a decision has clear-cut goals and the outcomes are left to chance. With ambiguity, the problem to be solved is not even known. Therefore it is that much harder to come up with information and goals needed to solve the problem in an ambiguous situation.
1 Marcic, Dorothy, and Richard L. Daft. "Corporate Culture and Environment." Management: The New Workplace. 8th ed. Mason, OH: South-Western, 2012. N. pag. Print.
2 Lyle, Shephard. Personal interview. 06 Oct. 2012.
Global central banks, generating ambiguous signals - BBH
Fri, Sep 25 2015, 10:51 GMT | FXStreet
FXStreet (Delhi) – Research Team at BBH, suggest that between expectations, actions, and guidance, there are a lot of moving parts on the global board game of central banks.
Key Quotes
“On one side of the spectrum, Latin American central banks stand out as cluster of hawkishness, and at the margin, the ECB and the BOJ have recently been relatively less dovish compared with what some had expected.”
“Draghi didn’t sound too sanguine on extending the ECB’s QE program, and neither did Nowotny. In Japan, many observers have been frustrated by the lack of signal for further easing. In LatAm, implied rates are pricing in a series of hikes in Brazil (though much is risk premium), Mexico could follow the Fed higher whenever it moves, Chile signalled a tightening bias, Peru could eventually follow up with more tightening, and Colombia’s central bank meets today and some expect hike.”
“On the other side of spectrum, we have seen a dovish resolution to the dilemmas of many other central banks. The Fed refrained from an early hike, though a move this year still seems likely. Norway cut rates to a record low of 0.75% and Taiwan cut rates to 1.750%, both surprising the majority forecasters.”
“Israel’s central bank kept rates on hold but said it’s open to unconventional measures. India seems likely to cut this month. Hungary’s central bank stated that it will keep rates low for longer than previously expected. Nigeria cut reserve requirements by 600 bp.”
“In addition, there is still risk of more easing in a host of countries, including Sweden, Switzerland, Australia, New Zealand, and South Korea, while expectations for a BOE hike has been pushed to mid-2016.”