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Fiegenbaum and Thomas (1988), however, postulated a discontinuous distribution which comprises nested curves which are concave to the right in the style of ( (. Unfortunately their paper does not provide sufficient detail to verify which relationship provides the better explanation.
It is becoming fashionable to reject keystone normative assumptions about individuals’ attitudes towards risk. A good example is Barberis and Thaler (2002)’ survey of Behavioural Finance’
This conflicts with the common assumption in most analyses “that an investment’s distribution of returns follows a normal distribution” [Peirson et al. (2002: 201)].
CAPM proposes that the expected return on any asset is equal to a risk-free rate of return plus the asset’s systematic risk, beta, times the expected difference in return between the market and the risk free asset. Aaker and Jacobson (1987) used the following model: (ROIjt ™ RFt) = αj + βj × (Rmt ™ RFt) + Sjt; where ROIjt is the return on investment of business j in year t; RFt is the interest rate on long term government bonds in year t, Rmt is the average return of all business units in year t; αj and βj are co-efficients to be measured, and εjt is the unsystematic risk of a business j in year t.
Daniel Ellsberg wrote an influential book on decision theory which led to policy appointments at RAND and in various US Presidential Administrations. The latter roles gave him access to classified material which became the Pentagon Papers after publication in The New York Times.
Not to be cowed by its predictive shortcomings, The Economist had a cover story on 25 October 2003 entitled “The end of the Oil Age” which said (page 11): “Ad vances in technology are beginning to offer a way... to diversify supplies of energy and reduce demand for petroleum, thus loosening the grip of oil...”
The Economist, respectively, 6 March 1999 and 18 November 2000
I contacted the lead author to see if there was any correlation between the size of a takeover (arguably a function of its probability of success) and outcome. The study did not find a link and concluded that “small deals can be every bit as tricky as big ones” (Personal communication, John Kelly, 17 September 2002)
Mackenzie (1981) analysed Canadian post War (1945–1979) base metal exploration economics using the following model: A = C Log(l-Pr)/Log(l-p); where all costs are in 1979 Canadian dollars, and A = exploration budget, C = average cost of finding any mineral deposit, Pr = probability that the budget will discover any economic deposit, and p = probability that a deposit is economic. Mackenzie calculated: p=0.02–0.04 and C=$0.45 million. Based on inflation such that $[C1979]l=$[C1990]1.7 and a 1990 exchange rate of $A1=$C1.07, forp=0.03 and A=$(A1990)10 million, Pr=0.35.
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© 2006 Physica-Verlag Heidelberg
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(2006). Risk-Taking and Organisation Performance. In: Why Managers and Companies Take Risks. Contributions to Management Science. Physica-Verlag HD. https://doi.org/10.1007/3-7908-1696-5_5
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DOI: https://doi.org/10.1007/3-7908-1696-5_5
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