Question

In: Economics

In what ways do the common pitfalls in determining risk tolerance reflect basic critical thinking? In...

  1. In what ways do the common pitfalls in determining risk tolerance reflect basic critical thinking?
  2. In what way does uncertainty and little or poor awareness of risk tolerance impact the consideration of ethics in business decisions? Provide three examples.
  3. Is the ethical dimension like other dimensions involving uncertainty and risk tolerance?

Solutions

Expert Solution

We have another exciting learning week and discussion here in week 5. By the end of this week’s conversation you should be able to clearly and confidently discuss:

· Uncertainty

· Rational decision making

· Identifying moral issues

· Considering all stakeholders

· Balancing right action, consequences, and character

The amount of risk one is willing to take on in their investments and financial activities is described as risk tolerance (Cong & Hanna, 2007). Knowing your risk tolerance is important, without it, taking on investments will always lead to a fail in profits. For example, taking on a large sum of investment and quickly selling due to emotional stress or regrets, may lead to financial loss. Vice versa, if the investor were to not invest in opportunities, they would miss out from potential financial gain. Uncertainty in decision making is presented due to lack of knowledge, incomplete/lack of information, and the situation has unpredictable alternatives (Cong & Hanna, 2007). When dealing with investments, one is never 100 percent certain, that’s why we take risks.

Ethics is not a feeling, religion, law, culture, or a science. It’s the behavioral standards one needs to uphold as a family man/woman, citizen, business person, professional, and so forth (Resnik, 2011). We recognize ethical issues by asking ourselves, will this decision hurt someone in the process. Business ethics helps us analyze policy and practice in business in regards to conceivably questionable subjects including corporate administration, cabal, bribery, corporate social duties and so forth (Sternberg, 2000). Legislation regularly governs business ethics, but business ethics provide rules and guidance to organizations, so that they may gain approval from the public. There are two dimensions in business ethics and they are normative and descriptive (Laczniak, Lusch & Murphy, 1979). Normative business ethics examines behavioral studies in regards to how people should behave (Laczniak, Lusch & Murphy, 1979). Whereas, descriptive business ethics examines behavioral studies on how people actually behave not how they should behave (Laczniak, Lusch & Murphy, 1979).

The most common ration decision making tool used is the 8 step process in decision making: (1) identifying the problem, (2) gather information, (3) identifying an objective

, (4) creating alternatives, (5) evaluating the alternatives, (6) deciding on which alternative to take, (7) implement the strategy, (8) monitor and evaluate (Hammond, Keeney & Raiffa, 2015). This is a helpful multi-step model that helps one determine which route to choose when dealing with a problem with many solutions.

Businesses operate in the same matter as rational decision making when making ethical decisions. When faced with an ethical problem for your business: (1) establish the facts, (2) is it a legal issue where legal counseling would greatly help, (3) identify alternatives and consequences, (4)evaluate and choose the best option, (6) implement and reflect on your decision (Sternberg, 2000). Corporations encourage the ethics culture by enforcing a code of conduct, maintaining communications, providing anonymous hotlines, and rewarding employees that operate with honesty, integrity, and loyalty


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