Question

In what ways do the common pitfalls in determining risk tolerance reflect basic critical thinking? In what way do uncertainty and little or poor awareness of risk tolerance impact the consideration of ethics in business decisions? Can you think of examples? Is the ethical dimension like other dimensions involving uncertainty and risk tolerance?

Answer 1

The common pitfalls in determining the risk tolerance are,

Failure in appropriate investment.

The wrong decisions that are taken by the investors while investing the money may lead to the increase in the risk of losing the money. The investment must be done in terms of the profit expected.

Investment done over and above.

The amount of money to be invested must be verified before investing. Overinvesting may lead to great loss.

Incorrect calculation of profit and loss.

The investor must calculate the expected profit and loss accurately as incorrect calculation of the profit and loss may lead to higher risks.

Ethics are moral principles that guide a person’s behavior. These morals are shaped by social norms, cultural practices, and religious influences. Ethical decision making is the process of assessing the moral implications of a course of action. All decisions have an ethical or moral dimension for a simple reason—they have an effect on others. Managers and leaders need to be aware of their own ethical and moral beliefs so they can draw on them when they face difficult decisions.

Ethical decisions can involve several determinations. The field of ethics, also known as moral philosophy, shows that there are various ways of systematizing, defending, and recommending concepts of right and wrong conduct. For example, from a consequentialist standpoint, a morally right action is one that produces a good outcome, or consequence. A utilitarian perspective takes the position that the proper course of action is one that maximizes overall happiness.

Most ethical decisions exist in a gray area where there is no clear-cut or obvious decision that can be determined solely through quantitative analysis or consideration of objective data or information. Ethical decision making requires judgment and interpretation, the application of a set of values to a set of perceptions and estimates of the consequences of an action. Sometimes ethical decisions involve choosing not between good and bad, but between good and better or between bad and worse.

Making ethical decisions also involves choice about who should be involved in the process and how the decision should be made. For example, if a decision will have a significant impact on the local community, leaders may feel obligated to invite a representative of the community to participate in discussions. Similarly, decisions with a significant ethical dimension may benefit from being made by consensus rather than by fiat—to demonstrate that the choice is consistent with an organization ‘s espoused values.

A business can be considered in many ways, you can qualify and analyse a business by using different aspects of iys operation. Ethics is one of those areas or dimensions you can consider risk appetite can be similar. As well as financial, legal, impact responsiveness to it's environment, agility, structure and leadership and management.